Fitch Ratings says that the Dubai prime property sector is set up for a strong 2014 following a vibrant 2013. Notwithstanding the positive trend, uncertainty remains a concern for the real estate sector in general as several factors and events evolve, notably Middle East instability, Dubai’s bid for the World Expo 2020 and major new real estate projects that are in the pipeline.
As per Fitch’s expectation, retail rentals and hospitality revenues have been holding up and have shown healthy performance and growth since 2011 to date and are in a comfortable position for another good year in 2014. Additionally, residential prices and demand have shown recoveries in prime locations in Dubai, but secondary locations, including new projects will continue to be challenged over the medium term.
The sector’s stable outlook continues to be reliant on the ability of real estate companies to maintain performance in light of the increasing supply and large expansion across all segments. Some estimates suggest that real estate prices in prime areas in Dubai have risen by up to 30% in 2013 to date. The sector continues to benefit from local, regional and international investors and healthy tourism. This is partly due to the turmoil affecting the main Middle East tourist destinations and the positive impact this has had on Dubai as a major Middle Eastern preferred destination. However, if instability in the Middle East escalated and started to reach the Gulf Cooperation Council (GCC), it could have a negative impact on the sector.
Fitch also notes that major new real estate projects amounting to billions of dollars have been announced in Dubai, which could put pressure on the sector if they materialise in the short to medium term. However, Fitch views the current limited availability of financing and the medium- to long-term nature of such projects as mitigating factors.
Moreover, the final decision about the venue of the World Expo 2020 for which Dubai is a candidate, is approaching. Fitch considers this event will bring opportunities such as spending and expansion in the infrastructure, real estate and hospitality sectors, but also challenges, such as the impact on the medium and long-term supply and demand balance in Dubai. Fitch will continue to monitor this development and its implications for Dubai-rated entities, as Dubai’s plans for investment in a wide range of sectors unfold and the plans of leading Dubai real estate developers materialise.
Another key factor for the stability of the sector continues to be leading Dubai’s real estate developers with substantial debt to regain confidence by more progress in repaying and refinancing upcoming maturities in 2014 and 2015, and attracting new investment to the sector.
In the GCC real estate sector, Fitch rates Majid Al Futtaim Holding LLC’s Long-term Issuer Default Rating (IDR) and senior unsecured rating at ‘BBB’, Jebel Ali Free Zone FZE’s Long-Term IDR at ‘B+’ and Dubai Holding Commercial Operations Group LLC’s Long-Term IDR and senior unsecured rating at ‘B’. The Outlook on all issuers is Stable.
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