Lifting of Iran, Russia curbs could spur UAE property market recovery

The lifting of geopolitical restrictions would open new investment flows into the region's real estate markets.

The lifting of geopolitical restrictions, including sanctions on Russia and Iran, could strongly benefit the recovery of the UAE property market, which is currently showing a sustained downturn, Standard & Poor's Ratings Services said on Wednesday.
The lifting of geopolitical restrictions would open new investment flows into the region's real estate markets and partly compensate for the softening demand from other countries, the ratings agency said. "A rebound in oil prices as well as weakening US dollar would also likely reverse the negative trend, in our view," said the report.
According to S&P's latest report, real estate prices in the UAE are likely to continue to decline in 2016 on the back of lower oil prices and a strong dollar-pegged local currency. "For the coming year, we see no sign of market improvement for the UAE real estate sector, despite housing affordability improving from the current price environment," the ratings agency said in a report.
S&P noted that pressures have arisen from declining oil prices dampening the hiring and expansion plans of oil-exposed companies. On top of that non-oil private companies' business activities having softened while the strong US dollar is rendering the UAE real estate more expensive for international investors holding non-US-dollar liquidities, S&P said. Another factor is that pressures on tourism negatively affecting retailers and their landlords, as well as hotel operators, it said.
"That said, we do not foresee major negative movements in our real estate sector ratings over the next 12 months. Generally, we believe that our rated developers could absorb a 10 per cent drop in residential sales prices in Dubai this year," the ratings agency said. However, developers' revenues should remain robust in 2016, despite headwinds.
"This reflects that most of their projects are presold - that is, the majority of units are already sold well before construction ends - and proceeds from buyers are blocked in an escrow account until completion. All our rated real estate companies have secured lease structures with long lease tenures and more than 90 per cent occupancies across the portfolio."
The residential property prices in Dubai fell 10 per cent in the first three months of 2016 due to a strong dollar and also because buyers had less cash to spend following the oil price slump, real estate consultants JLL in a report said in a report.
"The Dubai real estate sector has softened since late 2014 after a three-year boom fed by an influx of cash from politically unstable Arab nations. But tougher borrowing regulations and higher transaction fees helped cool the market, with sales volumes slumping last year along with prices," JLL said.
According to real estate consultancy Cluttons, residential values in Dubai fell by an additional 2.2 per cent during the first quarter of 2016 after falling by an average of 3.1 per cent during 2015. "This marks the strongest quarterly decrease in average residential values in five years and the seventh consecutive quarterly decline, highlighting the challenges faced by both the apartment and villa sales markets," Cluttons' Dubai Spring 2016 Residential Property Market Outlook, said.
- issacjohn@khaleejtimes.com