Dubai's property market could start to cool over the next 12 to 18 months amid the global economic pressures, but the emirate’s developers will be able to withstand the turn in the cycle due to their strong liquidity position, according to a new report.
“We expect developers to continue to accumulate cash and improve liquidity buffers in preparation for the next cyclical trough, given their off-plan pre-sales remain healthy,” S&P Global Ratings said on Monday.
“While developers' cash flow generation and credit metrics could weaken, ratings should be able to absorb the downside pressure, assuming the market correction is mild.”
Property prices in Dubai, the commercial and tourism hub of the Middle East, have risen at double-digit rates per year since 2021, driven by government initiatives and strong demand from buyers.
Dubai has been ranked as the world’s fourth most active market in the luxury residential segment amid higher property sales.
The emirate recorded the sale of 219 homes priced above $10 million last year, with the total value of the transactions reaching $3.8 billion, global property consultancy Knight Frank said in a report earlier this year.
Dubai ranks behind New York (244 sales), Los Angeles (225 sales) and London (223 sales).
The emirate registered a 40.7 per cent annual jump in the volume of residential sales valued at more than $10 million in the third quarter of 2023.
The volume of homes priced over $10 million in Dubai – the commercial and tourism centre of the Middle East – totalled more than $1.59 billion in the July-September period, according to Knight Frank.
As real estate prices continue to rise in Dubai, the risk of a cyclical reversal is mounting, S&P said.
It expects property prices to increase 15 per cent to 18 per cent in 2023 and by another 5 per cent to 7 per cent in 2024 as the Dubai market gradually slows down.
“We don't expect a profound market disruption. Instead, we think price increases could decelerate and potentially slightly reverse over the next 12-18 months, with price declines not exceeding 5 per cent to 10 per cent,” S&P said.
Developers will record strong cash generation and higher earnings before interest, taxes, depreciation and amortisation (ebitda) in the run-up to the next cyclical trough, according to the report.
“This will support further deleveraging and build a buffer for the next cyclical correction,” the rating agency said.
“The balance of power has shifted in favour of developers over the past couple of years. Therefore, we believe their credit quality should be more resilient to a softer price environment or fewer transactions.”
New property launches are expected to continue, despite the expected downturn, it said.
Developers “are also likely to launch smaller units since the price per square foot has become expensive and buyers are starting to downsize spaces. This contrasts with an earlier preference for larger properties following pandemic-related restrictions,” it said.
The rating agency said it already factored in the industry's cyclicality and the emirate's particularly volatile and sentiment-driven demand while assigning credit ratings to Dubai’s developers including Emaar Properties, Damac Real Estate Development and PNC investments, also known as Sobha Realty.
Company%20profile
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Yahya Al Ghassani's bio
Date of birth: April 18, 1998
Playing position: Winger
Clubs: 2015-2017 – Al Ahli Dubai; March-June 2018 – Paris FC; August – Al Wahda
UAE currency: the story behind the money in your pockets
Killing of Qassem Suleimani
UAE currency: the story behind the money in your pockets
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ESSENTIALS
The flights
Emirates flies from Dubai to Phnom Penh via Yangon from Dh2,700 return including taxes. Cambodia Bayon Airlines and Cambodia Angkor Air offer return flights from Phnom Penh to Siem Reap from Dh250 return including taxes. The flight takes about 45 minutes.
The hotels
Rooms at the Raffles Le Royal in Phnom Penh cost from $225 (Dh826) per night including taxes. Rooms at the Grand Hotel d'Angkor cost from $261 (Dh960) per night including taxes.
The tours
A cyclo architecture tour of Phnom Penh costs from $20 (Dh75) per person for about three hours, with Khmer Architecture Tours. Tailor-made tours of all of Cambodia, or sites like Angkor alone, can be arranged by About Asia Travel. Emirates Holidays also offers packages.
Name: Brendalle Belaza
From: Crossing Rubber, Philippines
Arrived in the UAE: 2007
Favourite place in Abu Dhabi: NYUAD campus
Favourite photography style: Street photography
Favourite book: Harry Potter
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Killing of Qassem Suleimani
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Engine: 2.0-litre 4cyl turbo
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AT4 Ultimate, as tested
Engine: 6.2-litre V8
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Cyber terrorism - Social media platforms are used to spread radical ideologies, misinformation and disinformation, often with the aim of disrupting critical infrastructure such as power grids.
Cyber warfare - Shaped by geopolitical tension, hostile actors seek to infiltrate and compromise national infrastructure, using one country’s systems as a springboard to launch attacks on others.
Killing of Qassem Suleimani
The specs
Engine: 2.0-litre 4cyl turbo
Power: 261hp at 5,500rpm
Torque: 405Nm at 1,750-3,500rpm
Transmission: 9-speed auto
Fuel consumption: 6.9L/100km
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Dust and sand storms compared
Sand storm
- Particle size: Larger, heavier sand grains
- Visibility: Often dramatic with thick "walls" of sand
- Duration: Short-lived, typically localised
- Travel distance: Limited
- Source: Open desert areas with strong winds
Dust storm
- Particle size: Much finer, lightweight particles
- Visibility: Hazy skies but less intense
- Duration: Can linger for days
- Travel distance: Long-range, up to thousands of kilometres
- Source: Can be carried from distant regions
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Real Madrid 2
Ronaldo (14'), Bale (72')
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PROFILE BOX
Company name: Overwrite.ai
Founder: Ayman Alashkar
Started: Established in 2020
Based: Dubai International Financial Centre, Dubai
Sector: PropTech
Initial investment: Self-funded by founder
Funding stage: Seed funding, in talks with angel investors
Company%20profile
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Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
Financial considerations before buying a property
Buyers should try to pay as much in cash as possible for a property, limiting the mortgage value to as little as they can afford. This means they not only pay less in interest but their monthly costs are also reduced. Ideally, the monthly mortgage payment should not exceed 20 per cent of the purchaser’s total household income, says Carol Glynn, founder of Conscious Finance Coaching.
“If it’s a rental property, plan for the property to have periods when it does not have a tenant. Ensure you have enough cash set aside to pay the mortgage and other costs during these periods, ideally at least six months,” she says.
Also, shop around for the best mortgage interest rate. Understand the terms and conditions, especially what happens after any introductory periods, Ms Glynn adds.
Using a good mortgage broker is worth the investment to obtain the best rate available for a buyer’s needs and circumstances. A good mortgage broker will help the buyer understand the terms and conditions of the mortgage and make the purchasing process efficient and easier.
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
UAE currency: the story behind the money in your pockets
