Real estate market in Dubai likely to be under pressure until 2012/2013, ratings agency predicts

Dubai’s property companies may face significant refinancing risks as the emirate’s real estate market is likely remain under pressure until at least 2012 to 2013, according to Fitch Ratings.

The property industry ‘is likely to see a period of stagnant growth at best and a double dip contraction at worst,’ said Bashar al-Natoor, director at Fitch’s Europe Middle East Africa corporates team.
It is a blow to real estate investors who have been looking for signs of recovery since property prices have fallen by 55% since their peak in the middle of 2008. Some analysts expect property prices to fall another 20 to 40%. Developers such as Union Properties PJSC are trying to sell assets to pay debts and complete projects.
Without a major improvement in market conditions, sizeable disposals, equity raising or significant government support, ‘it is unlikely that developers will deleverage quickly enough to repay the upcoming 2011/2012 maturities from internal resources,’ al-Natoor added.
The credit outlook for Dubai’s real estate remains negative as the availability and the cost of debt is likely to deteriorate, prompting investors to demand higher risk premiums, al-Natoor confirmed.
Dubai’s real estate and construction industries will continue to weaken on increased customer delinquencies, tighter liquidity and the reliance on short-term maturities, according to the report.
‘Oversupply, limited mortgage availability and rising interest rates will also pose significant constraints for real estate companies and buyers,’ it concludes. Dubai rents are expected to decline over the next 12 to 18 months as developers try to prevent tenant defaults, Fitch added.
Meanwhile the latest figures show that sales prices are level. The price of apartments, villas and commercial properties remained stable in second quarter of the year compared to the previous three months with minimal reductions in villas across just two areas of the city, according to a new report from Astecto Property Management.
The Asteco Q2 2010 Report said that no change was recorded in the sales price of apartments and offices, with flats in Dubai International Financial Centre (DIFC) and on Palm Jumeirah still commanding the highest prices.
‘The market is at a stage where pricing can vary from unit to unit in any particular property. We have noticed some overseas clients, who bought property on Palm Jumeirah, are prepared to sell at a much lower price per square foot as the exchange rate is more favourable without them incurring any discount,’ said Elaine Jones, chief executive officer of Asteco Property Management.
Villas are roughly the same as the first quarter of the year in all areas except The Meadows and The Springs, where prices declined 5 and 6% respectively mainly due to the large number of units available in the area, their age and the fact that owners who initially bought into this development at low launch prices, are in the position to reduce their asking price without making a loss, the report also pointed out.
Palm Jumeirah villas remain the most expensive at AED1,800 per square foot due to its iconic water front development, with the Green Community at the opposite end of the scale with villas selling for AED700 per square foot