UAE. While Standard & Poor’s expects somewhat of a correction in the UAE’s 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.
After reaching a peak in 2014, the property market in the United Arab Emirates is set to soften in 2015 and early 2016. The market is facing a turnaround in operating conditions that is likely to dampen performance.
Global oil prices have sharply declined since June 2014 and Standard & Poor’s Ratings Services believes they are likely to remain relatively weak throughout this year and next.
Given the role of this commodity in the region, domestic economic growth in the UAE is likely to slow markedly in 2015 and 2016. We also observe some volatility on the emirates’ equity markets.
“We believe real estate companies in the UAE are better armed to deal with the current slowdown and should be able to absorb it with limited ratings impact,” said Standard & Poor’s credit analyst Franck Delage, in the report published today, “Inside Credit: The UAE’s Property Market Is Prepared For The Current Correction.”
Property development is a volatile and cyclical business by nature, especially in Dubai’s market where most buyers are investors. Our current ratings already incorporate this inherent volatility and potential softening in our base case.
Still, we have run alternative scenarios, where market conditions would deteriorate further than we currently anticipate, with average selling prices dropping 30%, and interest rates doubling. Even under these harsh conditions, the ratings impact on GCC issuers would likely remain limited over the next 12-24 months as the current backlog and presales support cash flow.
About Standard & Poor’s Ratings Services
Standard & Poor’s Ratings Services, a part of McGraw Hill Financial (NYSE: MHFI), is the world’s leading provider of independent credit risk research and benchmarks. We have approximately 1.2 million credit ratings outstanding on government, corporate, financial sector and structured finance entities and securities.
With nearly 1,400 credit analysts in 26 countries, and more than 150 years’ experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information and independent benchmarks that help to support the growth of transparent, liquid debt markets worldwide.
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