S&P adds to bearish voices on Dubai residential property market

The value of Dubai property transactions in 2014 fell 7.6 per cent to Dh218 billion compared with the previous year, according to the Dubai Land Department. Sarah Dea / The National

Dubai home prices could fall by as much as 20 per cent this year, says a top ratings agency.

Standard & Poor’s expects the property market to suffer from increased supply and weakening investor sentiment triggered by the tumbling price of oil.

It is the latest bearish view on the emirate’s residential property market, which peaked last year.

JLL, the property broker, on Tuesday predicted that prices and rents in Dubai would drop this year by an average of 10 per cent. House prices had increased 56 per cent in the two years through June, according to the brokers.

Franck Delage and Gregg Lemos-Stein, regional property analysts for S&P, said that prices in the emirate could this year slide by between 10 and 20 per cent, depending on location and investor sentiment.

The value of Dubai property transactions in 2014 fell 7.6 per cent compared with the previous year to Dh218 billion, according to Dubai Land Department data released this month.

Analysts do not expect a repeat of the crash between 2008 and 2009, when properties lost about half of their value. That is because of the introduction of stopgap government measures that have helped to cool the market for a softer landing.

Such measures include the doubling of registration fees charged on transactions to 4 per cent and the introduction of mortgage lending caps by the UAE Central Bank.

Dubai’s economy is also more diversified than before. There were now more non-oil companies in the emirate than before the crisis and supply remained under control, the analysts said.

Meanwhile, the residential market is expected to absorb another 25,000 new units this year, according to JLL.

The office sector remains stable, particularly in prime free zones such as the Dubai International Finance Centre, the S&P analysts said. The retail sector is unlikely to decline despite the fall in Russian tourists, who were among the top spenders in the emirate. Russia was Dubai’s fifth-largest source market in 2013, with 400,000 guests.

“In DIFC, vacancy is very low, much lower than the rest of Dubai and demand is still there,” Mr Delage said. “In 2014, corporates, especially non-oil corporates, were expanding in the city, so that is supporting the demand, and rents were quite stable because of supply absorption.”

The analysts noted that retail rents were similarly unlikely to drop as strong domestic demand, as well as that from Asia and the wider Arabian Gulf, would offset fewer visitors from Russia.

Despite the expected softening of residential property prices, the analysts said that S&P was unlikely to review the ratings for the UAE companies it monitors, which include Emaar Properties and Damac Properties.

“Most corporates we rate have strongly de-leveraged and have strongly improved their financial profile and their financial strength because 2014 was a good year for developers and commercial real estate as well,” Mr Delage said. “They got a lot of cash and they are well positioned to absorb potential softening in prices, that’s why we maintain this stable outlook for 2015.”

Neither does the ratings agency predict that property companies will have difficulty tapping the debt markets for their financing needs.

“We are not factoring any kind of liquidity difficulty for the market,” Mr Lemos-Stein said, while noting that this could nonetheless “change very rapidly”.

“The key thing to watch is how companies respond to the scaling back of their investments and maintaining their balance sheets, or whether some are more aggressive,” he said.

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