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Fitch : Dubai Developers Face Refinancing Risk

2010-07-19

Dubai’s property companies may face significant refinancing risks as the emirate’s real estate market will likely remain under pressure until at least 2012- 2013, Fitch Ratings said. The property industry “is likely to see a period of stagnant growth at best and a double-dip contraction at worst,” Bashar al-Natoor, director at Fitch’s Europe Middle East Africa corporates team wrote in a note e-mailed today. Property prices in Dubai fell by 55 percent since mid-2008 mainly because of the financial crisis, prompting some foreign homeowners to stop paying off mortgages and leave the country. Some analysts expect property prices to dip another 20 percent to 40 percent. Developers such as Union Properties PJSC are trying to sell assets to pay debts and complete projects. Without a major improvement in market conditions, sizeable disposals, equity raising or significant government support, “it is unlikely that developers will deleverage quickly enough to repay the upcoming 2011/2012 maturities from internal resources,” al-Natoor wrote. The credit outlook for Dubai’s real estate remains negative as the availability and the cost of debt is likely to deteriorate, prompting investors to demand higher risk premiums, al-Natoor wrote. Dubai’s real estate and construction industries will continue to weaken on increased customer delinquencies, tighter liquidity and the reliance on short-term maturities, according to the report. “Oversupply, limited mortgage availability and rising interest rates will also pose significant constraints for real estate companies and buyers,” al-Natoor wrote. Dubai rents are expected to decline over the next 12 to 18 months as developers try to prevent tenant defaults, Fitch said.

 


 

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