Lifting of Iran, Russia curbs to spur UAE realty market

dubai — 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 regions’ 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.”