Dubai real estate market could begin to cool in the next 12 to 18 months amid global economic pressures, but the emirate’s developers will be able to withstand the change in cycle thanks to its strong liquidity position, according to a new report.
“We expect developers to continue accumulating cash and improving their liquidity buffers in preparation for the next cyclical downturn, as their off-plan pre-sales remain healthy.” S&P Global Ratings he said Monday.
“While developers’ cash flow generation and credit metrics could weaken, the ratings should be able to absorb downward pressure, assuming the market correction is mild.”
Property prices in Dubai, the Middle East’s commercial and tourism hub, have risen at double-digit rates per year since 2021, driven by government initiatives and strong buyer demand.
Dubai has been classified as the fourth most active market in the world in the luxury residential segment amid higher property sales.
The emirate recorded the sale of 219 homes priced over $10 million last year, with the total value of transactions reaching $3.8 billion, global property consultancy Knight Frank said in a report earlier this year. anus.
Dubai ranks behind New York (244 sales), Los Angeles (225 sales) and London (223 sales).
The emirate recorded a 40.7 percent annual increase in residential sales volume valued at more than $10 million in the third quarter of 2023.
The volume of homes valued at more than $10 million in Dubai – the commercial and tourism center of the Middle East – amounted to more than $1.59 billion in the July-September period, according to Knight Frank.
As property prices continue to rise in Dubai, the risk of a cyclical reversal increases, S&P said.
It expects property prices to rise by 15 to 18 percent in 2023 and another 5 to 7 percent in 2024 as Dubai’s market gradually slows.
“We do not expect a deep market disruption. Instead, we believe price increases could slow and potentially reverse slightly over the next 12 to 18 months, with price declines not exceeding 5 percent to 10 percent,” S&P said.
According to the report, developers will record strong cash generation and higher earnings before interest, taxes, depreciation and amortization (ebitda) in the run-up to the next cyclical downturn.
“This will support further deleveraging and create a cushion for the next cyclical correction,” the ratings agency said.
“The balance of power has shifted in favor of developers in recent years. Therefore, we believe its credit quality should be more resilient to a softer pricing environment or fewer transactions.”
New property launches are expected to continue, despite the expected slowdown, he said.
Developers “are also likely to launch smaller units as the price per square foot has become expensive and buyers are starting to downsize. “This contrasts with a previous preference for larger properties following pandemic-related restrictions,” he said.
The ratings agency said it had already taken into account the cyclical nature of the industry and the emirate’s particularly volatile, sentiment-driven demand when assigning credit ratings to Dubai developers including Emaar Properties, Damac Real Estate Development and PNC Investments. , also known as Sobha Realty.
Updated: November 14, 2023 at 3:30 am
