Over supply, tight liquidity and weak demand are the main factors that have lead to the rating, according to a new report.
Access to finance has become more difficult since September 2008, the ratings agency said and this has been exacerbated by the liquidity crunch. On top of poor investor sentiment has pushed speculative buyers out of the market.
The report indicates that credit conditions in the real estate industry are not likely to improve much in the next 12 to 18 months.
'Although drivers of demand vary considerably among the Gulf Cooperation Council (GCC) countries, residential and commercial real estate are under pressure due to lower demand, lack of funding, worsening consumer sentiment and risk of over-supply,' the report said.
The ratings agency also blamed population contraction due to widespread job losses among expatriate workers for its bearish outlook on property in the Gulf region.
'Furthermore, long term population growth rates, in excess of 5% for most countries in the region, are no longer realistic in the short term and may become negative over the coming quarters as investments in commercial activities, including foreign direct investments, are drying up,' the report added.
Moody's also said that refinancing would be a problem for companies with 'uncommitted short term bank lines'.
But Saudi Arabia is one exception to its negative rating for Gulf real estate due to a growing local population fuelling demand for housing, Moody's pointed out.
The report concluded that there are some signs of optimism especially the high level of support the real estate sector is receiving in the form of financial bailouts and stimulus packages from governments.
