New Delhi, March 22
The ongoing conflict in West Asia could slow momentum in Dubai's residential real estate market, though a sharp crash similar to the 2008 financial crisis is unlikely in the near term, according to a report by S&P Global Ratings.
The report said the property sector in the United Arab Emirates is vulnerable to geopolitical developments due to its reliance on expatriates and foreign investment.
"Real estate in the United Arab Emirates (UAE) is among the sectors that could suffer credit pain due to the Middle East conflict... the UAE, and notably Dubai, is particularly exposed to the indirect effects of the current conflict," the report said.
According to the report, the conflict has already created caution among investors and slowed activity in the property market.
"The conflict has introduced caution. Official sources are reporting lower transaction volumes since the start of the war," it said.
The ratings agency expects both transaction volumes and prices in the residential market to weaken if the conflict continues.
"We expect a slowdown in Dubai real estate volumes and a decline in residential prices... The longer the conflict persists, the more pronounced any such decline would be," the report noted.
However, S&P said the market is unlikely to experience a sharp collapse if the intense phase of the conflict remains short.
"S&P Global Ratings doesn't expect a 2008-style property crash in Dubai if the intense phase of conflict lasts up to four weeks," the report said.
At the same time, the agency warned that risks could increase if the conflict continues for a longer period.
"A meaningful correction is not outside the realm of possibility if the conflict is prolonged beyond four weeks," it added.
The report also noted that investor sentiment may weaken, particularly in high-end residential segments.
"Investor sentiment could be most imminently hit in the luxury and ultra-luxury segment... Ultra wealthy and high-net-worth individuals who moved to UAE for tax or lifestyle reasons could reconsider their decisions," it said.
According to S&P, apartment prices may see sharper declines than villa prices due to a larger supply pipeline.
"We expect declines in apartment prices to be more intense than villa prices given the strong apartment supply pipeline," the report said.
Despite these pressures, the report noted that government policies and visa reforms could help stabilise the market.
"The UAE government's visa reforms will create a degree of stability and stickiness for residents and home/property owners," the report said, referring to long-term residency options such as the Golden Visa.
The ratings agency added that tighter real estate regulations and stronger financial buffers among developers could help the sector absorb short-term shocks.
"The low leverage of these developers would also help them absorb a relatively short-lived shock," the report noted.
However, it cautioned that prolonged disruption could test market resilience and investor confidence.
"Sentiment could gradually weaken, with some expatriate departures or exodus and price declines," the report added.
- ANI
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