2017 to be tough year for Dubai real estate sector
Dubai’s real estate sector will have another tough year after a bumpy ride in 2016, and residential prices and rents will drop by 5 per cent-10 per cent, according to the latest predictions in a report from international credit rating agency S&P.
“For 2017, we see no signs of market improvement for the UAE real estate sector, despite housing affordability improving from the current price environment,” says the agency.
Correction in 2016
The market saw a correction last year as a result of the fallout from low oil prices and continued currency woes.
Dubai’s residential prices dropped between 8 per cent and 11 per cent on average and rent fell by 6 per cent according to REDIN.com, with most areas of the city affected.
Earlier this month, property consultant Chestertons MENA revealed that residential cash sale transactions in the emirate dropped in 2016. Nearly AED18 billion worth transactions were recorded during the year, dropping by 25 per cent from 2015.
On the other hand, in capital Abu Dhabi, average apartment and villa rents fell by seven per cent-ten per cent as muted business expansion in the private sector forced many companies to take on several cost-cutting measures, including job cuts in 2016.
“Redundancies and the shrinkage of the oil and gas sector continue to place pressure on the demand in the market. Tenants are seeking lower rental rates as housing allowances have been reduced,” said Robin Teh, UAE Country Manager, Chestertons MENA.
The strength of the dollar is also making the UAE increasingly expensive for tourists and low oil prices in 2016 have diminished purchasing power and weakened investor sentiment, S&P says.
“The pound declined by 17 per cent versus the U.S. dollar in the past 12 months due to Brexit fears. The evolution of the pound remains a concern for the UAE as the U.K. is traditionally among the top three source markets for visitors to Dubai, and U.K. nationals were the fourth largest investor in residential real estate in the first half of 2016.”
Too early for negative ratings
“However, we do not foresee major negative movements in our real estate sector ratings in the next 12-18 months as we think developers will be able to absorb the fall in house prices due to low debt burdens and strong balance sheets. Rated real estate companies are also hedged somewhat due to their high asset quality and long-lease structures,” says S&P.