Banks and property developers in the UAE should be able to withstand the correction, meaning they are protected from ratings downgrades, Fitch adds.
The rating agency says prices of residential units increased by about 60% in 2022-Q1 2025 with demand underpinned by immigration in the post-pandemic years coupled with the improved attractiveness of the Dubai property market for investors in healthy economic environment.
This is against the backdrop of a record number of new property projects in 2023-2024, which are expected to release about 250,000 units. The spike in deliveries is expected in 2026, when about 120,000 units are planned for handover, compared to only 30,000 in 2024 and 90,000 in 2025. The handover of new units will lead to a record increase in supply.
"We estimate an average 16% increase in supply in 2025 - 2027, exceeding forecast population growth of around 5%. Meanwhile, the average residential rental yield declined by 30bp in H2 2024 - Q1 2025 (albeit to a still heathy level of 7.4%) and we expect higher supply will put a further pressure on rental yields."
"Delays in deliveries of some projects are possible, given low completion rates to date and the previous record of smoothening supply. Furthermore, assets in prime locations will remain more resilient to a potential correction, given a different typical investor profile with generally longer holding periods and higher tolerance for price swings."
"Rated UAE homebuilders and banks have reasonable cushions to tolerate the forecast level of falling prices given the improved leverage at homebuilders. This in turn resulted in lower levels of real estate financing at banks, which is also coupled with improved capital cushions coming from strong profitability."
The report, “Dubai Real Estate Market Risks” is available at www.fitchratings.com.
