Developers in Abu Dhabi are less likely to get sideswiped by COVID-19 and low oil prices. Image Credit: Gulf News Archive

Dubai: Abu Dhabi real estate companies will face less severe headwinds from the double-whammy of the coronavirus pandemic and lower oil prices than those in Dubai, Moody's has said.

Residential oversupply isn't as pronounced in Abu Dhabi, which supports the credit quality of Aldar Investment Properties and Emirates Strategic Investment Co., Moody's analyst Lahlou Meksaoui wrote in a note. In Dubai, job losses, salary cuts and travel restrictions are slashing demand for new property.

"The economic contraction and its fiscal implications will be most acute in Dubai, where the economy is very reliant on tourism and transportation," Meksaoui wrote. Still, there will be a credit-quality erosion of real estate companies in the UAE, he said.

As the coronavirus wreaked havoc on the global economy, it also aggravated Dubai's property slump where oversupply has pushed prices lower for the past six years. The downturn is likely to further reduce rents and the value of homes.

Gross profit margins of builders like Emaar Properties will continue to weaken, Moody's said.