The residential property market in Dubai remains oversupplied and the downward trend is likely to continue until the second half of 2010, according to the latest ratings report.
Large scale lending has not returned to the property market and the number of delinquencies is on the rise, says credit ratings agency Moody’s Investors Service in a special report on the emirate.
The Dubai residential property market generally remains oversupplied and the downward trend in the market is unlikely to stabilise before Q2 2010,’ the report says.
Its analysts point out that a number of factors are set to shape the real estate sector in the coming months. These include the merger of two of the emirates largest master real estate developers, the inauguration of Burj Dubai, the world’s tallest tower, and the opening of the Dubai Metro.
The merger of Emaar Properties and Dubai Holding Commercial Operations Group’s three companies Sama Dubai, Dubai Properties and leisure developer Tatweer, will create a new giant in Dubai’s real estate market and the new company will have unrivalled access to a sizeable land bank, strengthened bargaining power with contractors and benefit from economies of scale, the report said.
But it is also warning that larger government ownership in Emaar may not be sufficient to mitigate the detrimental impact that the merger would have on the company’s fundamental creditworthiness.
Furthermore, ongoing market weakness and the prospects of weaker cash flow over the near to medium term will impact the combined group going forward,’ said Martin Kohlhase, an associate analyst in Moody’s Corporate Finance Group in Dubai.
Moody’s said it would keep ratings for Emaar Properties and Dubai Holding under review until the merger is finalised at the end of 2009.
‘We believe that the valuation will largely be driven by value assigned to the land bank of Dubai Holding, which may be adjusted downward to reflect Dubai’s overall economic downturn over the past nine months,’ Kohlhase added. Moody’s outlook for the GCC real estate sector for the coming 12 to 18 months remains negative.