Gulf developers face funding freeze

Investor appetite for Gulf real estate bonds and sukuk is expected to stay weak through 2026, leaving developers with limited access to public debt markets as geopolitical risk, rising supply and pressure on property valuations reshape funding conditions across the region.

Omar Musharraf, Managing Director for Debt Solutions and DCM at Arqaam Capital, said the market was effectively shut for real estate issuers for the rest of the year, with only limited activity possible in 2027 once investors can assess how a fresh wave of completed apartments and villas is absorbed. “I don’t think anyone is going to be very excited about investing in real estate companies in the immediate future,” he said.

The warning marks a sharp turn for a sector that had benefited from strong post-pandemic demand, high off-plan sales, foreign capital inflows and expanding sukuk markets. While Gulf debt issuance as a whole has remained sizeable, the property segment is now being treated differently by investors because of its direct exposure to sentiment, foreign buyer flows and refinancing risk.

The shift has been most visible in the UAE, where Dubai and Abu Dhabi developers entered 2026 after several years of strong sales and rising prices. Dubai home prices had climbed steeply between 2022 and early 2025, supported by population growth, wealth migration and investor demand for off-plan projects. That momentum has been tested by regional security concerns and a growing debate over whether planned completions will exceed absorption capacity.

Property transactions in the UAE softened sharply in March after conflict in the region unsettled investors, with deal volumes falling both month-on-month and year-on-year. Some agents reported selective price cuts on luxury and off-plan units, though developers and brokers said transactions had not stopped and long-term buyers continued to seek opportunities.

Debt investors are now focusing less on headline sales figures and more on delivery schedules, cash collection, leverage and exposure to unsold stock. Developers that relied heavily on off-plan receipts may face tougher scrutiny if buyers delay payments or if resale prices weaken before handover. Issuers with large land banks, high construction commitments or short-term maturities are likely to face higher funding costs if they attempt to return to market.

The broader Gulf debt market still has depth. Sukuk issuance across Gulf Cooperation Council countries expanded in the first four months of 2026, led by Saudi Arabia and supported by local-currency activity. The UAE debt capital market is also expected to remain one of the region’s largest, with banks, government-related entities and stronger corporates continuing to attract demand. That resilience, however, has not translated into easy funding for property developers.

The divergence reflects a more selective investor base. Banks, sovereign-linked borrowers and infrastructure issuers are still viewed as defensive credits, while real estate companies are being priced against cyclical risks. A developer that might have found demand during the boom now faces questions over whether rental growth, population inflows and end-user demand can support the volume of units scheduled for completion.

Dubai’s supply pipeline has become central to that debate. Apartments are expected to dominate 2026 deliveries, with several districts carrying a large share of projected completions. Business Bay, Jumeirah Village Circle, Dubai South, Dubai Science Park and Dubai Hills Estate are among the areas expected to see major handovers. Villas and townhouses remain comparatively tighter, but investors are increasingly differentiating between prime, income-producing assets and mass-market apartment stock.

Large listed developers such as Emaar Properties and Aldar Properties entered the year with strong backlogs and established access to funding. Their scale, brand strength and liquidity provide some protection. Smaller and highly leveraged developers face a more difficult environment, particularly if they need to refinance maturing debt or fund construction before receiving full buyer payments.

Saudi Arabia’s property sector presents a different profile, driven by Vision 2030 projects, mortgage demand and state-backed development. Yet even there, investors are becoming more disciplined about project economics and execution risk. Developers linked to national priorities may retain market access, while private issuers without strong balance sheets could find public debt issuance expensive or unavailable.

The pressure on real estate sukuk also comes as global investors reassess emerging-market credit risk. Higher-for-longer borrowing costs, regional conflict premiums and tighter secondary-market liquidity have raised the hurdle for new issuance. Buyers are demanding stronger covenants, clearer cash-flow visibility and pricing that compensates for property-cycle uncertainty.

For developers, the likely response will be a greater reliance on bank lending, private credit, joint ventures, phased launches and internal cash generation. Some may delay projects, reduce land acquisitions or adjust payment plans to protect collections. Others may explore asset sales or securitisation structures, though investor appetite for complex real estate exposure is unlikely to improve without clearer signs of market stabilisation.