Moody’s casts gloomy outlook for Gulf property

Increased property oversupply the key driver behind Gulf real estate industry’s negative outlook, says Moody’s.

The outlook for the Arabian Gulf’s property industry is far from rosy, with an increase in oversupply expected, according to a Moody’s study.

In its Industry Outlook report, Moody’s Investors Service said that the gap between supply and demand would widen as more properties came online.

“The supply-demand imbalance in commercial property and to some degree in residential units, depending on the city or country, is likely to grow worse as vast supply meets slack demand and is a major driver of our negative outlook,” said Moody’s analyst Martin Kohlhase, who wrote the report.

The rating agency added its negative outlook reflected the property sector’s credit conditions for the next 12-18 months.

Other drivers of the outlook remain the same as in 2009, such as funding and the preservation of cash, which includes potential disposals of non-core assets, cash collection and debt standstill agreements, the Moody’s report noted.

During the past 12 months, Moody’s has downgraded the ratings of all GCC issuers with exposure to real estate. An average A2 rating for April 2009 has since fallen five notches to Ba1.

Despite the region’s negative outlook, Moody’s pointed to Saudi Arabia’s property industry as a potential bright spot among the GCC countries.

“The large, growing and young population of this Kingdom continues to support the local residential market,” Kohlhase said. “Furthermore, rent and sale prices have remained stable in prime areas, while limited price correction has been witnessed on the outskirts.”

The rating agency said it could revise the outlook to more stable based on several factors, including government spending for public infrastructure work; government intervention; a shortage of low and middle-income housing and international expansion.

“However, we do not envisage moving to a stable outlook in the near term,” Kohlhase said.