Dubai Real Estate

Dubai property prices could slightly reverse in 12-18 months: S&P

Stronger cash generation bolsters liquidity and credit metrics of Dubai developers.

Dubai real estate prices are likely to  decelerate and slightly reverse by 5% to 10% over the next 12-18 months, S&P Global Ratings said in a new report released on Monday.

“We don’t expect a profound market disruption,” the ratings agency said, adding the “risk of a cyclical reversal was mounting”. 

 Nevertheless, property prices are estimated to increase by 15% to 18% in 2023 and another 5% to 7% in 2024.

The prices for villas have exceeded previous peak levels, but apartments are lagging at 10-20% below previous peaks due to a historical oversupply.

According to S&P, stronger cash generation has bolstered liquidity and credit metrics of Dubai developers, creating headroom for them to withstand the turn in the economic cycle.

Developers have been able to pass on significant price increases but also improve their cash collections. Post-handover plans have become rare in Dubai but were once the norm. 

Well-established developers are able to collect 100% of cash on the handover of units, as opposed to historical post-handover payment plans that extend up to five years.

 “As a result, we expect cash collections will remain above historical levels due to sustained flow of advance payments on new project pre-sales, faster collection on recent projects and residual collections on older projects.”

 A prolonged correction, however, could expose deeper strains.

 S&P expects pre-sales to decelerate to a “still-healthy” level, as developers adapt their offerings to demand, such as prime properties, including branded residences.

 “They are also likely to launch smaller units since the price per square foot has become expensive and buyers are starting to downsize spaces. This contrasts with an earlier preference for larger properties following pandemic-related restrictions,” the report noted.

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