After peaking in second half of 2014, Dubai residential property prices have been declining over the past few years and are approaching levels last seen at the nadir of the 2009-2010 property crash, according to global ratings agency S&P.

The property prices in Dubai are likely to stabilise by 2020 but doesn't not see any meaningful recovery in 2021, stated S&P in its report "Dubai Real Estate Downturn To Continue: Projections And Ratings Impact," published today (February 19).

"Given the continued gap between supply and demand, in our base case we expect prices to fall a further 5 to 10 per cent in 2019 before a gradual stabilisation in 2020, though without a meaningful recovery in 2021," remarked S&P Global Ratings credit analyst Sapna Jagtiani.

"In our stress case, we project a more pronounced decline in prices, with the market only stabilizing in 2021," stated Jagtiani.
 
Weak market conditions will continue to translate in higher leverage in the real estate sector and has already led to some negative rating actions over the past six months, she added.

S&P pointed out that its ratings on banks, and insurance companies already incorporate these weakening real estate prices.

"While not our base case scenario, a more pronounced price decline could conspire if supply isn't reigned in especially if major developers continue to launch new projects in a weak market," stated Jagtiani.

Dubai, unlike other sovereigns in the GCC region, is not an oil economy and has instead made its name as an international business hub in the region.

As with most service-led economies, the real estate sector has become an important contributor - representing about 7 per cent of nominal GDP, alongside construction activities also at about 7 per cent and a barometer of investor sentiment in Dubai.

The top ratings aggency said the real estate sector had proven to be volatile, subject to the indirect economic effects of swings in oil prices, but also somewhat due to geopolitical risk.

The Dubai property market's long decline since a peak in second-half 2014 has prompted speculation about when it will reach bottom and begin to rebound, stated the report.

Since their last peak in 2014, prices and rents have fallen 25 to 33 per cent in nominal terms, it added.-  TradeArabia News Service