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The first forecast on the COVID-19 impact to the Dubai real estate sector: S&P

31.03.2020
Standard & Poor’s analysts forecasted the future for housing prices and Dubai property developers.

According to the latest forecast from Standard & Poor’s, as the coronavirus crisis continues to rattle the world, housing prices in Dubai will decline more sharply than expected, and landlords will be forced to freeze rents.

S&P has downgraded its ratings for some of the largest real estate companies in Dubai, citing the current pandemic likely to reduce international and local demand for real estate in the emirate.

The main challenge for Dubai's real estate sector today is to cope with an oversupply that has led to lower prices and rents. In 2019, more than 35,000 real estate units were completed, which is the highest annual supply. This entire volume was expected to be absorbed by the market due to the increased demand during the World Expo 2020 due to be hosted in Dubai by the end of this year.

However, since the coronavirus outbreak, non-vital business activity was suspended, and it is not yet clear whether Expo 2020 will be held on schedule, and whether housing demand will increase.

“The current imbalance between supply and demand in Dubai's real estate market exacerbated by the effects of the COVID-19 pandemic. The widespread temporary closure of enterprises, similar to what is happening now in other countries, or the cessation of works, including construction sites, is also likely, which may lead to delays in future deliveries of residential units. This, in turn, may put extra pressure on the developers’ financial viability,” S&P said in its report.

“We expect housing prices to decline more rapidly than anticipated, and negative trends in the industry to continue throughout 2021,” S&P added.

“Private real estate companies, such as Majid Al Futtaim and Emaar Malls, may also have to freeze rents for their tenants so that they could keep their business afloat, as is done now in other regions. Similar measures may extend to office tenants to support companies that cannot operate as before,” S&P said.

And for the main developers of Dubai, analysts have certain forecasts too:

DAMAC

As for DAMAC, this year the company is unlikely to launch new real estate projects, and is likely to focus on selling existing stocks. Currently, the developer’s portfolio contains more than 15,000 real estate units under construction, of which 4,000 to 5,000 units are expected to be completed this year, if there is no construction stop due to a pandemic.

EMAAR

Analysts continue to believe that Emaar's strong market position, brand value, high assets quality, an experienced management team, as well as the focus on cost management will allow the company to cope with current problems.

DIFC Investments

S&P said the company's current lending performance provides a sufficient buffer against the expected deterioration in working conditions.

“We expect the DIFC to receive timely and sufficient emergency support from the Dubai government if it encounters financial difficulties,” the report said.

Health crisis is now the biggest challenge for the global economy since the 2008 global crisis. Quarantines, travel restrictions and temporary breaks in performance cost companies billions of dollars in losses.

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