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The UAE real estate market is expected to see sustained strong performance over the next 12–18 months despite a slowdown in demand compared to previous years, Moody’s Investor Service said in a report, cited by Al Bayan. The forecast is attributed to several factors including the success of the country’s visa scheme, its economy’s quick rebound following the pandemic, and the ongoing surge in oil prices. There has been a 15% average increase in property prices in Dubai and Abu Dhabi since 2Q 2021, with some 80k units in the construction phase, the report says.
The credit rating agency highlighted a boost in real estate developers’ net income margins on demand from domestic and foreign investors. The increased demand is reducing developers’ reliance on the banking industry, according to Julian Haddad, Moody’s vice president and senior analyst. 2022 saw a 6% y-o-y decline in loans to the construction and real estate sectors, followed by a 4% y-o-y decrease in 1H 2023. High demand has enabled companies to offer friendly pre-delivery payment terms. The report states that the real estate industry in the country has experienced increased diversification and maturity since 2008.
BUT- High inflation and interest rates pose potential long-term risks for UAE developers, Moody’s said in the report, according to Zawya reports.Smaller developers with less favorable payment terms and potentially lower quality customers are at a particularly greater risk. The ratings agency notes that consumer spending is likely to decline under these conditions as well and the risk of missed mortgage repayments may increase if current rates persist, according to Al Bayan.
Market liquidity and investor mood are predicted to drop if the geopolitical tensions in the region intensify and the global macro climate remains sluggish. Moody’s warns that these risks could reduce demand for new real estate supply, potentially limiting earnings growth and profitability developers they rate such as Aldar Properties, Arada Development, Damac Real Estate Development Limited, Emaar Properties, and PNC Investments.
