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Moody’s flags long-term risks for UAE developers amid high inflation & interest rates

Moody's predicts that consumer spending is likely to decline, and the risk of missed mortgage repayments may increase if inflation fails to slow and interest rates remain high

Moody’s Investor Service has recently stated that sustained high inflation and high interest rates could pose a risk to UAE homebuilders in the long run.

The ratings agency pointed out that smaller developers, who operate with less favourable payment terms and potentially lower-quality customers, are at greater risk.

However, the UAE banks have improved their solvency and liquidity buffers since the 2008 global financial crisis when Dubai’s property values sank. The ratio of problem loans has dropped from 10.5% to 5.1% since 2011, and loan loss coverage is now above 100%.

Moody’s predicts that consumer spending is likely to decline, and the risk of missed mortgage repayments may increase if inflation fails to slow and interest rates remain high.

Furthermore, if the global macro environment remains subdued, market liquidity and investor sentiment are expected to weaken, particularly if underlying geopolitical tensions in the region are intensified.

“Those risks would reduce demand for new supply in the market and could limit earnings growth and profitability for the homebuilders we rate,” Moody’s noted.

The top-rated property developers in UAE, according to Moody’s, are Aldar Properties, Arada Development, Damac Real Estate Development Limited, Emaar Properties, and PNC Investments.

Although the real estate market in UAE is expected to remain healthy for the next 12-18 months, Moody’s predicts that demand will be slower than in the past two years.

Since the second quarter of 2021, prices have increased by an average of 15% in Dubai and Abu Dhabi, with 80,000 units currently under construction.

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