Dubai: The UAE real estate sector faces another difficult year after a correction in 2016, according to S&P Global Ratings.

Last year Dubai’s residential prices dropped by 8 to 11 per cent on average and rent fell by 6 per cent according to, with most areas of the city affected.

“The struggle is set to continue into 2017 as currency pressures persist and residential prices and rents are likely to continue to fall. This year we expect prices to decline in the range of 5 to 10 per cent,” said Sapna Jagtiani, an analyst with S&P.

Although oil prices hovering in the range of $50-$55 per barrel — which is just half of what it used to be at its 2014 peak — economies are still adjusting to the new price environment both on the revenue and expenditure side. Apart from the regional and domestic macroeconomic conditions resulting from low oil prices, global factors such as weakness of the UK pound and dollar strength are impacting the UAE real estate.

The pound declined by 17 per cent versus the US dollar in the past 12 months due to Brexit fears.

“The evolution of the pound remains a concern for the UAE as the UK is traditionally among the top three source markets for visitors to Dubai, and UK nationals were the fourth largest investor in residential real estate in the first half of 2016. Nevertheless, the UAE still appears to be a good market for investors seeking yield — despite the strong dollar — as rents have held up better than residential prices, however, we expect this to change soon,” said Jagtiani,

Currency market dynamics in the recent past a have made the UAE expensive for tourists and shoppers as the US dollar continues to appreciate. Along with the pound, the euro, Chinese yuan renminbi, and Indian rupee have declined by 3 per cent, 7 per cent and 2 per cent respectively. If currency pressures persist, analysts say Dubai could potentially lose its coveted status as an international shopper’s paradise and have to concentrate its customer base on GCC travellers.

The profile of visitors is shifting to a value-conscious tourist who might spend less per trip than a tourist the year before. This thwarts growth in the retail, restaurant, hospitality, and entertainment sectors. Therefore, international retailers will need to adjust prices in the market to keep shoppers spending.

For the coming year, S&P analysts see no signs of market improvement for the UAE real estate sector, despite housing affordability improving from the current price environment. In 2017, the two largest rated developers — Emaar Properties PJSC and Damac Real Estate Development — together representing about 35 per cent to 40 per cent of total project launches, are expected to deliver between 5,000-5,500 units in Dubai.

Assuming the remaining competitors deliver a slightly lower volume, the market may absorb a residential supply of at least 10,000-11,000 units in 2017, which is more or less in line with the long-term average. Analysts do not expect this steady supply to act as a catalyst to currency effects, but could potentially add further downward pressure on residential prices.

Rated issuers are expected to withstand house price decline. “We believe that our rated developers will be able to absorb the anticipated decline in house prices in 2017 due to their strong balance sheets and low debt burdens. Rated developers are also shielded because they primarily operate on the pre-sale model, which means the property investor effectively funds the construction,” said Jagtiani.