UAE's strong economic recovery bolsters rating of property companies, Moody's says

Developers such as Emaar and Aldar will continue to draw strength from the economic bounce-back

The water show at the Dubai Fountain. The reopening of international borders and the tourism sector recovery in the UAE will benefit retail landlords such as Emaar Malls Management. Getty Images

The credit quality of the UAE property companies will remain stable in the next 12 to 18 months, as higher oil prices and a bounce-back in the services sector continue to support the strong economic momentum in the country, Moody’s Investors Service said.

The operating environment in the Arab world’s second-largest economy has improved significantly, further strengthening the credit profile of Moody’s-rated real estate companies. This came despite the risks of rising inflation and interest rates, the rating agency said on Monday.

Emaar Properties, the UAE’s biggest developer by market value, and Abu Dhabi-listed Aldar Properties, will continue to draw strength from the economic bounce-back.

“Off-plan property sales will remain high for Emaar and Aldar, with positive investor sentiment supporting solid demand, especially for high-quality projects,” Moody’s said.

“There are a growing number of high-net-worth buyers who will support off-plan demand. These are cash buyers which are less sensitive to rising interest rates than mortgage-financed buyers in the secondary market.”

The UAE economy bounced back strongly from the pandemic-driven slowdown last year — and the economic momentum has picked up pace this year.

The economy is set to grow at the fastest annual pace since 2011 after growing by 8.4 per cent in the first quarter of this year on higher oil prices and successful Covid-19 mitigation measures.

The economy, which expanded by 3.8 per cent in 2021, is expected to grow by 5.4 per cent and 4.2 per cent in 2022 and 2023, respectively, according to Central Bank of the UAE data.

Emirates NBD forecasts the UAE economy will grow by 5.7 per cent and Abu Dhabi Commercial Bank expects a 6 per cent expansion, supported by a sharp rise in the oil sector. Moody's forecasts the economy will accelerate between 6 to 7 per cent in 2022, while the International Monetary Fund projects 4.2 per cent this year.

The bounce-back in the tourism sector and a buoyant property market have also supported the UAE’s non-oil economy. Pent-up demand and improving investor sentiment have driven property prices and transaction volumes, particularly in the residential sector in recent months.

In Dubai, average residential property prices increased by 10 per cent in the year to June, with apartment prices nearly 9 per cent higher on an average and villa prices increasing by 19 per cent, a CBRE report found.

In July, Dubai also recorded the highest number of sales transactions in the past 12 years, Property Finder said.

Abu Dhabi recorded 7,474 property transactions worth more than Dh22.51 billion ($6.12bn) in the first six months of the year.

“We expect homebuilders to launch new development projects to take advantage of the positive investor sentiment and strong momentum in the market,” Moody’s analysts said. “In some instances, there is a short supply of quality master community developments.”

The economic recovery will continue to attract foreign investment to the UAE’s property sector, Moody’s said.

In August, Apollo Global Management, one of the world’s largest alternative investment managers, acquired a $400 million equity stake in Aldar Investment Properties.

Apollo's acquisition is part of its previously announced $1.4bn investment into Aldar’s transformational growth initiatives.

The reopening of international borders and the tourism recovery in the UAE will benefit retail landlords such as Emaar Malls Management. Moody’s expects average rents to be stable in the next 12 to 18 months.

In the office segment, the rating agency expects “moderate average rent increases” in the Dubai International Financial Centre as “demand for high-quality office buildings remains high and supply is tight”.

The rating agency does not expect tightening in financial markets to pose an “immediate threat” to companies it rates.

“As financial markets remain volatile and interest rates rise, there is a risk of an extended squeeze on liquidity which will limit capital market access,” Moody’s said.

“However, all companies we rate have enough liquidity to cover debt maturities for the next 12 to 18 months. Good unencumbered asset and interest coverage ratios will support stable credit quality.”