The real estate prices in the UAE are likely to continue declining this year mainly due to the oil slump which has inturn dampened the hiring and expansion plans of energy firms besides the softening of non-oil private companies' business activities, according to Standard & Poor's Ratings Services.

"For the coming year, the ratings agency does not see any sign of market improvement for the UAE real estate sector, despite housing affordability improving from the current price environment," stated S&P in its report "Inside Credit: UAE Real Estate Prices May Slide Further In 2016, As No Positive Signs Emerge," published today (April 27).

Pressures have also arisen from a strong US dollar rendering UAE real estate more expensive for international investors holding non-US-dollar liquidities and the knock-on effect on tourism negatively affecting retailers and their landlords, as well as hotel operators, the report said.

"That said, we do not foresee major negative movements in our real estate sector ratings over the next 12 months. Generally, we believe that our rated developers could absorb a 10 per cent drop in residential sales prices in Dubai this year," it added.

For the UAE real estate sector, 2015 was the first year since the recession in which prices declined. Dubai's residential real estate prices dropped 10 -13 per cent on average according to industry experts, and most areas of the city were affected.

The city's property developers delivered 9,400 units last year, slightly down from the 11,000 in 2014 as per REIDIN data.

According to S&P, the developers' revenues will remain robust in 2016, despite headwinds. "This reflects that most of their projects are presold--that is, the majority of units are already sold well before construction ends--and proceeds from buyers are blocked in an escrow account until completion," it stated.

All our rated real estate companies have secured lease structures with long lease tenures and more than 90 per cent occupancies across the portfolio, the ratings agency noted.

According to S&P, the pressures are threefold. First, declining oil prices have dampened the hiring and expansion plans of oil-exposed companies. Non-oil private companies' business activities have also slowed, with job creation much lower than last year and even going into neutral in Dubai in February, according to Markit and Emirates NBD Research.

These include construction and real estate, which accounted for by far the most activity by population in 2015, as well as tourism and retail.

Second, the US dollar, to which UAE currencies are effectively pegged, has remained persistently strong over the last 12 months. This has made UAE real estate more expensive for international investors holding non-U.S.-dollar liquidities.

Finally, we foresee pressures on tourism, which is a key industry in the UAE, especially for Dubai. In addition to tourists' diminishing purchasing power, we view the lack of significant geopolitical improvement of the Western world's relations with Russia as a concern, given that Russians were among the top-five retail shoppers and hotel tourists in Dubai prior to the US sanctions and ruble devaluation in 2015.

But despite all this, there is still hope. "We still believe that the lifting of geopolitical restrictions, such the sanctions on Russia and Iran, could strongly benefit the recovery of the UAE property market. This would open new investment flows into the regions' real estate markets and partly compensate for the softening demand from other countries," said the report.-TradeArabia News Service

A rebound in oil prices as well as weakening US dollar would also likely reverse the negative trend, in our view. Only a rating committee may determine a rating action and this report does not constitute a rating action, it added.-TradeArabia News Service