Persian Gulf property market likely to worsen

Moody's cites vast supply in pipeline, scarce lending

(DUBAI) Persian Gulf real estate markets will probably worsen in the coming months as a 'vast' supply of properties becomes available and lending remains scarce, Moody's Investors Service said.

Moody's gave the industry a negative outlook for the next 12 months to 18 months and has downgraded the ratings of all Gulf Cooperation Council-based companies affected by real estate, analyst Martin Kohlhase said in a report yesterday.

'The supply-demand imbalance in commercial property, and to some degree in residential units, is likely to grow worse as vast supply meets slack demand,' he said.

Gulf property companies are struggling after the global financial crisis choked off lending, making it more difficult for them to finance developments and depriving the market of homebuyers.

The average long-term debt rating for the companies is Ba1, one step below investment grade. In April 2009, the average was A2, five steps above 'junk' status, according to the report.

The GCC is made up of Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait.

The market in Dubai, part of the UAE, has worsened the most, with house prices falling by 50 per cent, according to the report. Emaar Properties PJSC, Dubai's largest developer, is rated B1, four levels below investment grade, and is on watch for further downgrade, according to the report.

Government intervention could improve prospects in the region, Mr Kohlhase wrote. Moody's is unlikely to give the GCC countries a 'stable' outlook in the near term, he said.

Saudi Arabia is the 'brightest spot' in the region, with a young and growing population bolstering the residential market, Moody's said.

The peak year for debt coming due will be 2012, meaning companies will have to address refinancing over the next 18 months, Mr Kohlhase wrote.

Saudi Arabia's Dar Al-Arkan Real Estate Development Co, for example, has US$1 billion of Islamic bonds, or sukuk, due to be repaid in July 2012, according to data compiled by Bloomberg. -- Bloomberg

Source: Business Times, 25 May 2010