x Abu Dhabi, UAESaturday 22 July 2017

Dubai offers property safe haven

Dubai's property market will get a boost from turmoil in the region, a new report says.

S&P expects property demand to rise in Dubai .
S&P expects property demand to rise in Dubai .

Political turmoil in parts of the region is expected to help spur demand for property in Dubai, says a report by the ratings agency Standard & Poor's

Several UAE property companies are exposed to political unrest affecting the Middle East and North Africa, including Emaar Properties, Majid Al Futtaim Holding, and DIFC Investments. But the declines in Egypt, Bahrain and other markets may be offset by increased activity in Dubai, S&P said.

"Fortunately for these companies they are well diversified geographically," said Tommy Trask, a credit analyst based in Dubai for S&P.

Property analysts throughout the region are trying to determine the impact of what CB Richard Ellis (CBRE) calls the "domino effect" of political unrest in the region.

In Bahrain, it is still too early to gauge the long-term effect on property markets, CBRE said in a report released yesterday.

"We're not seeing a mass exodus of companies," said Afshan Shah Dadabai, the research manager for CBRE in Bahrain.

Most companies are locked into long-term leases, making any movement unlikely in the short term.

"It's not going to happen overnight," Ms Dadabai said.

Office rentals rates in Bahrain have hit new lows, CBRE reported. But rates were sliding long before the political tensions, due to an "irrational exuberance" of construction in the past three years, the property agency said.

Prime office space that rented for 13 Bahraini dinars (Dh126.64) a square metre per month in the first quarter of 2009 is now available for 8 dinars a sq metre, CBRE reported. Overall rates are 6 dinars a sq metre, making it "one of the cheapest places in the GCC from which to do business", CBRE said.

Office landlords "will definitely be under pressure to further reduce rents to keep occupancy", Ms Dadabai said.

Tourism and hospitality businesses in Bahrain have been the hardest hit in the short term, she said, adding hotels were reporting occupancy rates as low as 10 to 15 per cent.

In contrast, Dubai tourism and retail sales have increased in the last quarter, S&P noted.

"It's clear the UAE is benefiting" from the regional unrest, Mr Trask said. "It is clearly seen as a safe haven."

Emaar and DIFC carry "negative" ratings for their exposure in Egypt, although DIFC is "looking to exit from some equity investments across the region", S&P reported.

But the agency expects growth in Dubai to "offset weaker results in Egypt and Bahrain".

Companies with diverse portfolios can "tolerate weaker performance for a couple of assets", Mr Trask said.

Some may adopt property investment trust status to improve financing and shield them from fluctuations in the market, S&P said.

Developers in the region "will likely be much more focused on projects with identified end users", it said. "We believe far greater effort will go into research before a project's launch and that it will involve end users from the design stage."

Property companies face other issues beyond the politics, including "supply-and-demand imbalances, affordability of property, and lack of mortgage financing," the agency added.