GCC real estate firms' credit quality stable after volatile years: S&P
DUBAI, March 11, 2024
The rated real estate companies in the GCC region have stable credit quality after a volatile few years that saw downgrades, recovery and restoration of credit profiles, according to S&P Global Ratings.
The key drivers include steady economic and population growth, a rebound in tourism as well as supportive oil prices, stated the ratings agency in its chartbook-style report, 'GCC Real Estate: How Credit Stories Have Evolved.'
The report chronicles the credit journey of real-estate firms in the Gulf countries including the UAE, Saudi Arabia, and Qatar.
Key downside vulnerabilities to the S&P base-case expectations include tail risks from geopolitical tensions, falling oil prices, rising oversupply risks, and shrinking land banks for developers in Dubai in particular.
The key takeaways from the report include:
*Real estate markets in various Gulf countries exhibit different dynamics. But most GCC rated entities now have stable credit outlooks.
*All but one GCC real estate company rated back in 2019 were downgraded by a notch during the pandemic amid the S&P's expectation that declining revenues, cash flow and ebitda would lead to higher leverage.
*Larger players with more diversified business mixes and more stable revenues demonstrated better resilience.
As of today, S&P Global Ratings said most of the GCC rated real estate companies have returned to or have exceeded the 2019 rating level. We have stable outlooks on all companies, except for one which is on positive outlook, it stated.
The Dubai real estate market, in particular, has benefited from fast price increases and volume momentum since 2021, which has been supportive to a rapid recovery of the credit quality of local players, it added.
On the 2024 outlook for the GCC real estate market, S&P Global said it expects an economic growth of 2%-3% this year, with a sustained oil-related growth and a solid 4%-5% increase in the non-oil economic activity in the UAE and Saudi Arabia on the back of large public investments and FDIs.
The population growth of 2%-3%, it stated, is a boost to the real estate sector. This is sustained by GCC governments’ reforms to support new businesses and expat inflow, including new visas, corporate-ownership rules, as well as new technology regulations.
Also a strong rebound in tourism, underpinned by government initiatives, will continue to enhance prospects for airline, leisure and hospitality, as well as retail sectors.
On the UAE market prospects for 2024, the top ratings agency said Dubai's residential property market is expected to cool over the next 12-18 months due to increased supply and global economic pressures that could affect
the demand, while Abu Dhabi residential real estate appreciation has not been as fast as in the neighboring Dubai, and therefore the market has not yet reached previous peak, cycle, suggesting limited risk of reversal.
On Saudi Arabia, S&P Global said sensitivity to high interest rates and price increases led to a reduction in real estate transactions in 2023. "We expect the demand to remain robust backed by Vision 2030 investments attracting new businesses and expats to the country," its stated.
On Qatar, the expert said the country's real estate is undergoing a cyclical correction after the boost related to the World Cup in November-December 2022.
Oversupplied real estate properties have seen price and rental declines, as more new units were delivered in 2023. Pressures will persist over the next two to three years, even if the new supply is expected to be limited, it added.-TradeArabia News Service
