UAE real estate developers are expected to prioritise preserving cash in view of the ongoing Middle East conflict, Fitch Ratings has said, indicating scaled-back expansion, project launches and land acquisitions.

The ratings agency noted that buyer interest has already dropped and that overseas demand is likely to be subdued. But the sector is not facing any imminent financial risk despite a potential sales decline, as Fitch said that developers have substantial contractual backlogs that can guarantee future income.

"UAE homebuilders are likely to prioritise cash conservation following the geopolitical shock in the Middle East," the agency noted.

"Immediate viewings have fallen, although the contractual backlog of pre-sales and purchasers’ escrowed cash should provide stability in the near term."

As for projects that are already substantially pre-sold, developers are likely to deliver them, as funds for these are already sitting in protected escrow accounts.

When it comes to completion dates, delays are likely not expected from agile companies despite supply chain disruptions.

However, when it comes to future project launches, developers are expected to scrutinise their plans because average selling prices may drop and the debt needed to start them is now riskier.

"The completion of existing near-term projects is … likely if substantially pre-sold already… The more agile construction companies will mostly complete projects on time and on budget despite likely construction supply disruptions."

Fitch said capturing profit is now less important for developers than ensuring liquidity for the group. This means they will likely pull back on buying new land, which usually costs 20% of a project’s end-value, or other major investment commitments.

And since ensuring liquidity is now a priority, players in the real estate market are also expected to scale back overseas forays or plans to expand into other neighbouring markets like Saudi Arabia, Oman or Kuwait.

(Writing by Cleofe Maceda; editing by Seban Scaria) seban.scaria@lseg.com