'Lingering oversupply' to impact Dubai real estate recovery: S&P

Developers are under significant pressure as real estate prices are 11%-12% lower in the emirate

Marina Blue Hour. Image used for illustrative purpose.

Marina Blue Hour. Image used for illustrative purpose.


Almost every sector of the Dubai real estate market, including properties and office spaces, will continue to be impacted by the 'lingering oversupply', which was in place much before the pandemic, affecting sales and revenues of developers, global ratings agency S&P said.

"Even before pandemic, we had lingering oversupply in the real estate sector in preparation for the Expo 2020. Now, developers are under significant pressure because residential prices are lower by 11 - 12 percent and more owners have to roll out rent relief measures. This will continue to impact their topline for a while,"  Sapna Jagtiani, director for corporate ratings, told a virtual audience at a conference on Tuesday.

According to S&P, the commercial real estate sector will witness some rationalisation in terms of occupancies and rental measures and lot of it has to do with the inherent oversupply, which was there even before the coronavirus pandemic. However, it would take a few quarters before the extend of the impact is visible.

"We are seeing lot of rental pressure in commercial space. Occupancy rates will come down and vacancy rates will go up. But it might take a while. It's not easy to shut down offices unless the businesses are going bust. It will take a few quarters before costs are rationalised by companies and they make big decisions such as working from home and letting go of spaces," Jagtiani said.

While oversupply and softening demand have affected the various real esate segments, COVID-19-related restrictions affected hospitality, tourism and retail sectors significantly.

"Flights in the region have resumed in July, however we expect that it will take several quarters before international passenger and tourism numbers are normalised," she added.

(Reporting by Seban Scaria; editing by Mily Chakrabarty)


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