Standard & Poor’s (S&P) Global Ratings said on Monday that the real estate sector in Dubai has bucked global trends recently. Prices have risen since 2021 by more than 10 percent, approaching their previous peak. Off-plan sales have also reached record levels. However, the ratings agency said that the sector is expected to slow down within the next 12-18 months.
Driving factors
S&P attributed the market boom in Dubai to the rise in overseas demand, especially from wealthy individuals. In addition, the agency said Dubai has been successful in diversifying its economy, which has performed well despite the high financing costs for companies and the continued inflation, although at a rate lower than the global average. Population growth and strong momentum in various economic sectors have also contributed to Dubai’s robust economy, according to the report.
Tatjana Lescova, credit analyst at S&P Global Ratings, added that Dubai’s economy is expected to grow by three percent on average during 2023-2024, down from five percent in 2022.
“Supported by the strong economic performance, the government’s fiscal position is likely to strengthen and its debt burden will continue to decline as a share of GDP,” she added.
Moreover, the report said that the strong generation of cash contributed to strengthening the liquidity and credit standards of real estate development companies. This has given them the opportunity to withstand any shift in the direction of the economic cycle. However, the continuation of the correction wave for an extended period would impose greater pressure on the sector.
Read: Dubai real estate poised to grow in 2023 amid luxury demand
Cyclical risks
The report also indicated an increasing risk of a reversal in the economic cycle with rising prices. It forecasts an increase in prices of about five to seven percent in 2024. It sees prices gradually slowing down.
However, Lescova added that she does not expect major turmoil in the real estate market. Rather, price increases will slow down or decline slightly during the next 12-18 months. This situation is dependent price declines not exceeding five to ten percent.
Lescova explained that off-plan real estate sales are expected to slow down. However, it will remain within a healthy range. This as real estate development companies will work to adapt the supply according to demand. The report said that units with smaller areas are likely to be launched to meet the need of buyers to reduce space due to high prices.
Further, developers are expected to continue raising cash and improving liquidity margins in preparation for the next economic downturn. The agency said this is likely to happen when off-plan sales remain robust.
Lescova added that the credit ratings of real estate development companies in Dubai are unlikely to change quickly because they are already absorbing some fluctuations in demand.
The agency has rated three real estate development companies in Dubai as follows: “Emaar” with a rating of (BBB) with a stable positive outlook, “Damac” with a rating of (BB-) with a positive outlook, and “PNC Investments” with a rating of (BB-) with a positive outlook.
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