Moody’s: UAE developers to eventually face risks due to high inflation, interest rates

In the longer term, continued high inflation and high interest rates may pose a risk to UAE homebuilders, Moody’s Investor Service stated in a new report.

The risks are larger for smaller developers, who operate with less advantageous payment terms and possibly lower customer base, the rating agency added.

Yet, the UAE banks have improved their solvency and liquidity buffers since the 2008 global financial crisis when Dubai property values dropped.

Problem loans have dropped from 10.5 per cent to 5.1 percent since 2011, while loan loss coverage is now above 100 percent.

According to Moody’s, consumer spending is likely to decline, and the risk of missed mortgage repayments may increase if inflation does not relax and rates stay high.

Market liquidity and investor sentiment are expected to decline if the global macro environment remains subdued, particularly, if underlying geopolitical tensions in the region are worsened.

“Those risks would reduce demand for new supply in the market and could limit earnings growth and profitability for the homebuilders we rate,” Moody’s stated.

The major rated developers are Aldar Properties, Arada Development, Damac Real Estate Development Limited, Emaar Properties, and PNC Investments.

Moody’s said that UAE real estate market conditions will stay healthy in the next 12-18 months, but demand will be slower than in the past two years.

Prices have increased by about 15 percent on average in Dubai and Abu Dhabi since the second quarter of 2021, with 80,000 units currently under construction.