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UAE real estate growth to slow: S&P

Companies in better position to deal with slowdown

After reaching a peak in 2014, the property market in the UAE is set to soften over the remainder of this year and early 2016, according to global rating agency Standard & Poor’s (S&P). The market, after three years of sharp price appreciation, is expected to witness a moderate 10 per cent to 20 per cent correction in residential real estate prices amid low oil prices.

However, real estate companies are in a better position than they were during the 2008-09 crisis to deal with the current slowdown and should be able to absorb it with limited ratings impact, the agency says in a report, Inside Credit: The UAE’s Property Market Is Prepared For The Current Correction, published on Monday (22 June).

“While we expect somewhat of a correction in the residential real estate market after three years of sharp price appreciation, it should be nothing on the order that led to the Dubai crisis in 2009, though,” says Franck Delage, Credit Analyst at S&P.

In Dubai’s residential real estate market, additional supply and slightly lesser demand are likely to push down the prices and rents over the next 12 months.

Quoting figures from the property data provider Reidin, the report says that a total of 20,170 units are anticipated to be delivered in Dubai this year, compared with the three-year annual average of 11,600.

Price growth has already started cooling down this year as prices of apartments were down two per cent while villas dropped one per cent. Also, rents stood flat compared with the final three months of the past year.

As price growth has already started cooling down this year, Reidin’s residential property price indices for Dubai show negative growth of between four and five per cent from January to April 2015.

The report says there will be slightly lesser demand from nonresidents in Dubai, for which S&P forecasts a 10 per cent price correction in 2015.

“Abu Dhabi, on the other hand, is experiencing a shortage of quality housing, which is why rents will continue to climb, albeit at a much slower pace than the 11 per cent of 2014,” says the report.

The report also mentions that: “With only 5,000 units scheduled for delivery in 2015, if rental caps or similar regulation aren’t introduced, we may continue to observe rent increases in the emirate’s capital. The only dampener we foresee for Abu Dhabi is the currently softer economic conditions driven by lower oil prices, which could keep rent growth in the single digits.”

In office real estate, S&P expects polarisation of the market to become even more pronounced. The gap between prime locations and lower-tier office buildings will widen in terms of rent and vacancy levels in Dubai and Abu Dhabi. “The effect may be marginal for best-located properties, but more severe for suburban locations.