International expectations of a further deterioration in Dubai’s real estate prices

Dubai’s real estate prices decline is unlikely to end soon. And international reports indicate further deterioration, most notably the S&P Global Ratings warns from a possible decline that may be “more pronounced” due to oversupply and the decline in demand.

Although some developers have seen profit growth seen by the agency as a “surprise” in 2018, the worst has yet to come to Dubai real estate after prices actually fell to levels close to the breakdown numbers that struck Dubai nearly 10 years ago.

Supply has accumulated and demand has dwindled, fueling what the agency calls the “long decline” in prices, with rents falling by one-third from the peak in 2014.

Concerns in Dubai extend beyond the real estate sector, which accounts for 14% of its economic output, to be considered by the rating company to be negative towards sectors ranging from banks to insurance.

“Given the continued gap between supply and demand, in our base case we expect prices to fall a further 5 percent to 10 percent in 2019 before a gradual stabilization in 2020, though without a meaningful recovery in 2021,” said Sapna Jagtiani an S&P analyst.

Under the “stress” scenario imposed by the rating company, property prices in the emirate may suffer a “more pronounced” decline but remain stable within two years only if additional projects are involved in this weak market.

According to Bloomberg, S&P suggests that the World Expo in Dubai next year will not play a role in the emirate’s troubled real estate game.

Hussain Sajwani, president of Damac Real Estate Development Company, whose shares lost half of its value last year, said Dubai property would not recover before the end of 2020.

The rating agency’s report comes just two days after a report by London-based real estate agency Knight Frank said real estate prices had fallen 25% in Dubai since 2015.

Knight Frank pointed out that the glamor of Dubai, once the most important center of real estate attraction in the world, especially for the rich, has begun to fade recently. The agency explained that the political turmoil in the region, the trial of princes and wealthy in Saudi Arabia, the fall in oil prices and the decision to block Qatar in mid-2017, are among the factors that have suffocated Dubai’s property and threaten the future financial recovery of the emirate was a magnet for wealth and wealth in the Gulf region.

Poor market conditions will lead to continued high indebtedness in the real estate sector, “have already led to some negative rating actions over the past six months,” according to S&P.

The agency predicted that the number of ongoing projects that will be stopped or delayed will be less than the number of projects that were stopped or delayed during the last downturn; “because the pace of the current downturn is progressing gradually through the application of further regulatory actions.”