Expo 2020 is now the only hope for the Dubai property market to pick up, but how much stimulus the expo is capable of providing also remains to be seen, Standard & Poor’s said in a report.
Dubai residential property prices and rents declined by between 5 percent and 10 percent in 2017, as expected, the rating agency said and pointed out that the correction will continue at least for this year and next. Prices could stabilize in 2020 at the earliest, but to what extent that can happen remains to be seen, S&P said.
S&P said it expected a continued decline in residential real estate prices as well as decreasing rentals for the retail and residential segments. The downward trend will mostly reflect promised new supply coming onto the market in the next two to three years. Hotels, too, will remain under pressure to accept much lower average daily room rates to maintain occupancy levels. This sector runs a serious risk of overbuild, the effects of which would be felt post-Expo.
“We anticipate residential prices and rents will keep falling until 2020, the Expo year. In 2020, however, the sector could well start to benefit from the potential increase in economic activity and positive business sentiment attached to Expo; the expected 25 million or more visitors and floods of new residents to Dubai should support the market. We anticipate a speculative surge in prices, devoid of any demand and supply mismatch,” the rating agency said.
S&P said that VAT will add direct costs to commercial real estate, as well as indirect costs to residential real estate, which could further dampen activity in the sector. The geo-political risks in the GCC, such as those posed by the boycott of Qatar, may also undermine investor sentiment, particularly international investors. It was no coincidence that real estate prices started declining at around the same time as oil prices fell sharply in 2014. The recent uptick in oil prices should therefore support the real estate market. The return of Chinese investors and Russian tourists should also breathe new life into the market.