Developers in the GCC will struggle to raise bank funding for new projects this year as liquidity tightens across the region, according to the JLL consultancy.
It highlighted the lack of bank funding as the main trend to affect property markets across the UAE in 2016.
Citing worsening bank results for the 2015 financial year, where local banks reported increasing provisions against bad loans, JLL Mena’s head of research, Craig Plumb, said: “Banks are understandably becoming more cautious, it’s going to be more difficult to get lending and the terms are going to be tighter.
“We’re looking at an increasing interest rate environment – that’s not going to help.”
As well as tightening bank funding, Mr Plumb said that appetite among investors in bond markets and capital markets for property would be subdued.
“The international markets for both bonds and IPOs are relatively cautious at the moment. There has been a lot of uncertainty. Bond investors are cautious, particularly towards the Middle East at the moment.”
He added that 12 months ago, it had been aware of 30-plus companies in the region that had been seeking to raise money on capital markets through an initial public offering.
“I think if we were to do the same thing now, that would be nearer to five than 30. We see some IPO activity, but perhaps not as much as was expected at the beginning of last year.”
Other trends the company is predicting for 2016 is for developers to seek corporate clients who are willing to sign a long pre-lease for significant portions of buildings (build-to-suit), and more building sales and leasebacks as companies look to free up cash in estates.
JLL also forecasts that the nature and pace of capital flowing out of the Middle East into property markets (mainly London and the US) will change. About US$11 billion was spent by Middle East investors last year and this was largely through sovereign wealth funds.
This figure is expected to slow and a greater proportion of investment is expected to come from private investors.
For Dubai, JLL is predicting a further decline in sale prices for residential units of about 5 to 10 per cent this year. Rents will also decline, but at a slower pace of 3 to 5 per cent.
In Abu Dhabi, residential sales growth was flat last year and the company expects a slight decline in prices of 5 per cent in 2016, mainly in off-prime locations. Rents are likely to remain stable.
A report by Standard & Poor’s published this month stated that UAE banks were likely to have lower earnings this year, with lower oil prices leading to a drop in deposits from government and corporate clients, cutbacks by some government clients on infrastructure projects and weakened sentiment in the real estate market.
S&P said this has inevitably led to comparisons with the market collapse in 2009, but the credit analyst Timucin Engin said: “this time is different”.
He said underwriting practices at UAE banks are now much stronger and the balance sheets of its government-related entities are healthier.
“We are likely to see a gradual but longer deterioration in operating conditions for banks over the next several quarters or years,” said Mr Engin.
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