UAE property companies unlikely to face financing problems

Strong cash positions and highly liquid market to support financing needsImage Credit: Gulf News Archives

Dubai: Property companies, especially the rated entities in the UAE will have no difficulty in funding their ongoing and planned future projects the context of falling oil prices and its impact on economic growth, Franck Delage and Gregg Lemos-Stein, regional property analysts for S&P told Gulf News in an interview.
S&P analysts said they are anticipating a slowdown in property prices in the UAE which they see as a relatively short term challenge for the sector.
“We do factor some softening in the real estate prices in the next 12 to 15 months. There are some short term challenges one of which is the oil price decline. Oil prices could have an impact on corporate sentiment which could be reflected in the office real estate prices. On the retail segment too there could be some impact if consumption spending is impacted. On the residential side, weakening macroeconomic situation could dampen investor demand,” said Delage.
Analysts said the real estate prices in the UAE have a high correlation to investor sentiment. However they said Dubai market in particular has stabilised since the financial crisis, thanks to government regulations and new mortgage rules.

“The Dubai market has calmed down since early 2014, with lower sales volumes and slowing growth in prices and rents. Legal and regulatory developments across the region have largely contributed to cooler price growth and are, in our view, likely to promote market confidence and stability over the long term,” said Lemos-Stein.
In the UAE, initiatives such as mortgage and rent regulation, central bank regulation of banks’ property exposures, and developer escrow accounts have helped to stabilise the market. However analysts said UAE companies could face challenges on the supply side.
“We may see a lot more supply in the market in the next two years. Increased supply is likely to outpace the demand for 2015 which could apply pressure on prices. However the correction will not be as harsh as during the financial crisis,” said Delage.

Surplus cash
Despite the potential softening of the market S&P sees stable outlook for the real estate sector. “Developers have strong liquidity, especially in the context that 2014 was a good year for most. We have taken some positive rating action because most of them have lots of cash on their books. All the major ones we rate have improved their financial profiles. Thus we expect they will be better equipped to face softening in price,” said Delage.
S&P rates UAE based companies such as Damac Real Estate Development, Emaar Malls Group, DIFC Investments, Dubai Investments Park Development Company and Abu-Dhabi based Aldar Properties.
The ratings agency does not anticipate any liquidity related issues for the UAE property companies or difficulties in fund raising through debt markets because of decline in oil prices or softening of real estate prices.
“As it stands today we don’t see any liquidity issues for these companies, in addition we don’t see any problem for them in tapping the debt markets if the require funding,” said Lemos-Stein.
“We maintain a stable outlook for the real estate sector and we don’t anticipate any change in the next 12 months even after factoring in the oil price situation. We do keep monitoring the oil markets. It may impact the performance of some companies but not in such a way that the compay’s individual credit rating would be hit. There is enough headroom in the financial matrix and I think that is why we haven’t changed the outlook,” said Delage.

Read more about real estate financial performance.

Source: Babu Das Augustine, Banking Editor


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