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UAE property market set to soften from peak after years of thriving

Xinhua, June 23, 2015 Adjust font size:

Real estate in the United Arab Emirates (UAE) is likely to lead to a moderate 10 to 20 percent correction in Dubai residential real estate prices, acording to the rating agency Standard and Poor's (S&P) in a study released Monday.

The UAE real estate market, after years of thriving during the rebound following the Great Recession, increasingly shows signs of exhaustion. "After reaching a peak in 2014, the property market in the UAE is set to soften in 2015 and early 2016," said the S&P report.

Dubai housing prices fell slightly in the first quarter of 2015 - with apartments down 2 percent and villas down 1 percent - compared with the final three months of last year, according to property consultants JLL and CBRE.

The main driver behind the decline is the slump in oil prices and the steady flow of new units entering the market as according to REIDIN, 20,170 additional units are expected to be delivered in 2015 in Dubai.

"Given the role of this commodity in the region, domestic economic growth in the UAE is likely to stagnate markedly in 2015 and 2016," said S&P credit analyst Franck Delage.

Oil prices plummeted to half price from June 2014 to February this year, triggering the Washington-based International Monetary Fund to slash its growth forecast for the UAE's economy - a member of OPEC and a major oil supplier - to 3.2 percent for 2015, down from its earlier projection of 3.5 percent.

Delage added that "While we expect somewhat of a correction in the residential real estate market after three years of sharp price appreciation - it should be nothing close to what led to the Dubai crisis in 2009, though."

Back in December 2009, Abu Dhabi, the oil-rich capital of the UAE, rushed to bail out Dubai's state-owned holding Dubai World and its developer Nakheel with a 10 billion dollar loan, following a slump of up to 80 percent in real estate prices and a dried-out credit market.

Despite an expected correction of up to 20 percent in some districts of Dubai, S&P expert Delage said that currently real estate companies are better equipped to deal with the current slowdown and should be able to absorb it with limited ratings impact.

"The diverse economy, positive demographics, and protective measures from local regulators should help prevent a crisis similar to that of 2009," said the S&P credit analyst. Oil contributes 29 percent to the UAE's gross domestic product, compared to 50 percent in Kuwait.

In addition, a stronger capital structure and a good revenue mix should allow issuers to withstand headwinds over the next 12 to 24 months, Delage pointed out.

Abu Dhabi, on the other hand, is experiencing a shortage of quality housing, which is why rent prices will continue to climb, albeit at a much slower pace than the 11 percent of 2014, he said. Endit