The pain in Dubai’s property market isn’t about to go away any time soon.
Home prices are set to fall by 10 percent this year because of lower oil prices and a strong dollar-pegged local currency, which makes real estate in the emirate more expensive for international investors, according to Standard & Poor’s. A slowdown in the hiring and expansion of companies is also putting pressure on the market, the ratings firm said in a report. Home prices slumped about 13 percent on average in 2015.
Dubai’s housing market, the biggest and most volatile in the Middle East, is in the doldrums as falling oil prices, a weaker euro and ruble and an abundance of properties damp demand. Residential values fell 2.2 percent in the first quarter, according to consultancy Cluttons, which predicts villa prices will decline 5 percent this year and apartment prices 3 percent to 4 percent.
“We are seeing some significant job losses among banks and other companies,” Jesse Downs, managing director at Phidar Advisory LLC, which is also predicting falling prices and rents, said by telephone. “Those still hiring are more cost-sensitive than before.”
Like S&P, Phidar expects sales prices and rents to drop 10 percent on average this year as landlords are finding it harder to lease larger and more expensive homes, Downs said. Property broker Cluttons predicts rental declines of as much as five percent this year.
Dubai’s biggest developer, Emaar Properties PJSC, responded to a weakening Dubai housing market by implementing “severe cost cuts” chairman Mohamed Alabbar said on April 19.
“We were pleasantly surprised” as first quarter sales were good, “but we are working so much harder than before. So much harder,” he said.
S&P said it doesn’t expect “major” negative movements in its real estate sector ratings over the next 12 months and that the developers it rates, including Emaar and Damac Properties Dubai Co PJSC, could absorb a 10 percent drop in prices.
“The lifting of geopolitical restrictions, such the sanctions on Russia and Iran, could strongly benefit the recovery of the U.A.E. property market,” S&P said. “This would open new investment flows into the regions’ real estate markets and partly compensate for the softening demand from other countries.”
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