Why buy house now? 3 factors that drive Dubai property market
Developers’ revenues remain robust in 2016: S&P
By Parag Deulgaonkar emirates 24/7 New
Published Thursday, April 28, 2016
Although over Dh55 billion worth of real estate transactions were registered in Dubai in the first three months of 2016, a new report by Standard and Poor’s Ratings Services states that lifting of sanctions on Russia and Iran, oil price recovery and a weakened US dollar will strongly benefit the recovery of the property market.
“We still believe that the lifting of geopolitical restrictions, such the sanctions on Russia and Iran, could strongly benefit the recovery of the UAE property market. This would open new investment flows into the regions’ real estate markets and partly compensate for the softening demand from other countries,” the ratings agency said in a report released on Wednesday.
“A rebound in oil prices as well as weakening US dollar would also likely reverse the negative trend,” the agency added.
The agency, however, said, quoting industry experts, real estate prices have declined by 10 to 13 per cent on average in 2015.
“For 2016, we see no sign of improvement for the UAE real estate sector, despite housing affordability improving from the current price environment. Pressures have arisen from declining oil prices subduing the hiring and expansion plans of oil-exposed companies, and non-oil private companies’ business activities having softened.
“The strong US dollar has made UAE real estate more expensive for international investors holding non-US-dollar liquidities, and weaker tourist sentiment has affected retailers and their landlords.”
# Absorb price drop
S&P says it does not foresee any major negative movement in its real estate sector ratings over the next 12 months.
“We do not foresee major negative movements in our real estate sector ratings over the next 12 months. Generally, we believe that our rated developers could absorb a 10 per cent drop in residential sales prices in Dubai this year.”
The company rated are DIFC Investments, Dubai Investments Park Development Company, Emaar Malls Group and Majid Al Futtaim Holding, Aldar Properties, Damac Real Estate Development Ltd, and Emaar Properties.
Developers’ revenues should remain robust in 2016, despite headwinds, S&P says, stating, “This reflects that most of their projects are presold — that is, the majority of units are already sold well before construction ends — and proceeds from buyers are blocked in an escrow account until completion.
“All our rated real estate companies have secured lease structures with long lease tenures and more than 90 per cent occupancies across the portfolio.”
Earlier this month, Emaar Properties Chairman Mohamed Alabbar said he was “really scared” of market conditions coming into 2016 but their performance looked good in the first quarter 2016 after some “severe” cost cutting.
“We were really scared of 2016. Preparing for our cost budget, we basically went back to a cost budget base of two years ago, just to be cautious,” he said after the company’s annual general meeting.