Dubai property prices could fall 10 to 20 per cent over the remainder of this year and early 2016, according to the ratings agency Standard & Poor’s (S&P).
But developers are better placed to cope than in the 2008-09 crisis, according to the agency.
The decline in values is taking place “after three years of sharp price appreciation” and is due to an increase in supply, S&P said.
It cited figures from the property data provider Reidin which anticipated 20,170 units to be delivered in Dubai this year – compared to the three-year annual average of 11,600.
Although it expects domestic economic growth to “slow markedly” in 2015-16 as a result of lower oil prices, it adds that the economy is more diverse than in 2009, when property sales were a key source of revenue.
The population is growing at a rate of 5 to 6 per cent in Dubai and 7 to 8 per cent in Abu Dhabi.
Tourism numbers should also hold up, and regulations such as the federal mortgage cap introduced in 2013 and mandatory requirements for developers to use escrow accounts for off-plan sales have reduced the risk of defaults.
S&P argues that the drop in demand is because of fewer non-residents buying properties.
“In early 2015, for instance, non-resident demand from Russia and other member countries of the Gulf Cooperation Council was particularly subdued.”
Major players in the market, such as Aldar Properties, DIFC Investments, Damac Properties and Emaar Properties, have managed to diversify revenue streams, as well as improve their own balance sheets and cash generation over the past two years.
The ratio of their debt to Ebitda dropped to 1.9x at the end of 2014, compared to 3.3x at the end of 2008.
The S&P credit analyst Franck Delage said that the major developers had attracted more money from rentals, which means that their income streams are more predictable.
“It gives good visibility on revenues. It gives a cushion of resources and helps to cover interest charges on a more predictable basis,” he said.
He added that they were more flexible in terms of revenue mix, with many capable of adapting their product range to produce more budget properties if required
“Since there has been a few years of strong price growth, demand could be more price-sensitive.”
A sensitivity analysis conducted by S&P for the report argued that even if the market performed much worse than predicted, with average selling prices dropping 30 per cent and current interest rates doubling, it would have little impact on the credit rating of major developers.