Dubai Real Estate Market Faces Stress Test Amid Regional Crisis: S&P Warns of Potential Price Declines
Dubai’s residential real estate sector is currently undergoing a significant stress test, as a regional crisis introduces a level of caution reminiscent of the pandemic era. This assessment comes from a recent credit analysis by S&P Global Ratings, which indicates that while the situation is concerning, it does not yet warrant alarm.
According to S&P, official reports show a decline in transaction volumes since the onset of the conflict. The agency had anticipated a moderation in Dubai’s property market following years of rapid price increases, but the current crisis has altered this outlook. S&P now predicts a decline in both transaction volumes and residential prices, with the extent of any correction closely linked to the duration of the ongoing situation.
Luxury Segment Faces Initial Sentiment Weakening
The luxury and ultra-luxury segments are expected to experience the first signs of weakened sentiment. S&P notes that ultra-wealthy individuals who relocated to the UAE for tax benefits or lifestyle changes may reconsider their investments. More generally, the agency anticipates that apartment prices will decline more sharply than villa prices, largely due to the substantial supply of new apartments entering the market.
Market dynamics are also shifting, with a forecasted decrease in presales for new developments. Conversely, supply in the secondary market is expected to rise as investors seek to offload properties. Foreign investors holding nearly completed units are particularly identified as likely sellers, a trend that could further depress market values.
S&P highlights a structural aspect of Dubai’s off-plan market that complicates the situation. Developers often sell units with aggressive payment plans, collecting approximately 20–25% in the first year, while up to 70% is tied to construction milestones. This structure allows projects to continue as long as defaults remain low, but it also exposes future cash flows to buyer sentiment and financial stability.
The Four-Week Threshold
S&P emphasizes the importance of the timeline in this context. The agency’s base case assumes that the most intense phase of the conflict will last up to four weeks. Under this scenario, a collapse akin to the 2008 crisis is not anticipated. However, if hostilities extend beyond this timeframe, a significant correction becomes a realistic possibility.
The Strait of Hormuz is flagged as a specific risk factor for the construction sector. Prolonged disruptions could lead to bottlenecks in the supply of building materials and increase costs due to rerouting and higher fuel prices. Currently, construction activity is proceeding normally, reflecting Dubai’s historical ability to maintain project timelines even during crises.
Developers Have Buffers, But Risks Are Building
A key question is whether the conflict will lead to outflows of residents or investment capital. S&P believes that structural reforms provide a degree of insulation. The Golden Visa program, which offers long-term residency rights to foreign nationals linked to property and investment thresholds, creates a level of commitment among residents and property owners.
Additionally, S&P points to the government’s crisis management response as a stabilizing factor. Measures aimed at ensuring safety, food security, and the normal functioning of goods and services have bolstered resident confidence. While sentiment may weaken and some expatriate departures could occur if the situation continues, S&P does not foresee a sudden mass exodus that would lead to a market collapse.
The agency also raises concerns about the physical risks to high-value assets, including airports, ports, hotels, and tourism landmarks, which face increased exposure to potential disruptions. Minor damage to real estate assets has been observed, but it remains repairable.
For the four Dubai-based developers rated by S&P—Emaar Properties, Damac Real Estate Development, PNC Investments, and Omniyat Holdings—existing regulatory frameworks and strong pre-crisis sales backlogs offer near-term protection. Dubai’s escrow regulations require cash collected on off-plan units to be held in secure accounts, with withdrawals permitted only upon verified construction milestones.
This structure, combined with multi-year revenue backlogs, provides a cushion. Emaar’s backlog covers 2.7 years of revenue, Damac’s 5.2 years, PNC’s 2.1 years, and Omniyat’s 4.8 years. Regulations also allow developers to retain up to 40% of a property’s value if construction is on schedule before refunding the remainder and repossessing the unit.
During previous downturns, delinquency rates for top-tier developers ranged from 3% to 10%, although these rates may be higher for less established players. Developers entering this period with higher debt levels may face increased pressure, necessitating financial discipline.
Liquidity and Investment Outlook
All four rated developers began this period with substantial cash positions. By the end of 2025, each held escrow balances sufficient to cover construction costs. Emaar had $11.7 billion in escrow and $7.5 billion in available cash and liquid investments, while Damac held $6 billion in escrow and $1.7 billion available.
However, S&P notes a distinction within this group. PNC and Omniyat have less financial flexibility compared to their larger counterparts, with lower available cash positions and additional funding needs related to land payments and prior debt-funded acquisitions.
Debt maturities are considered manageable, with no immediate refinancing pressure. Damac and Omniyat issued $600 million sukuks in February and March 2026, respectively, while PNC Investments and Omniyat raised $1.25 billion and $900 million, respectively, in 2025.
S&P highlights that Emaar faces broader pressures than its residential-focused peers, including declining hotel occupancy, reduced foot traffic in malls, and lower revenues from entertainment assets. Emaar also has the largest planned capital expenditure, estimated at AED 10–11 billion annually in 2026 and 2027, although a portion remains flexible.
Developers are expected to reassess their investment strategies. Projects nearing completion are likely to proceed, while new land acquisitions and discretionary investments may be postponed. For Damac, Omniyat, and PNC, capital expenditure beyond existing commitments is limited.
Regarding dividends, S&P anticipates that Damac will distribute between $1.5 billion and $1.6 billion in 2026, while Omniyat’s dividend outflow is projected at AED 30–50 million. Dividend decisions for Emaar and PNC will be subject to board review but are expected to remain elevated relative to historical levels.
The Broader Picture
S&P frames its analysis around scenarios rather than certainties, emphasizing the unpredictability of the conflict’s duration and impact. Dubai’s property market enters this period in a stronger position than in previous cycles, supported by tighter regulations, healthier developer balance sheets, and a more stable resident base.
However, the agency’s conclusion is clear: the longer the conflict continues, the more pressure will build on prices, sentiment, and liquidity, increasing the likelihood and severity of a market correction.
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Published on 2026-03-17 18:06:00 • By Editorial Desk
