Dubai Real Estate Faces Stress Test as S&P Warns of Potential Price Declines Amid Regional Crisis
Dubai’s residential real estate market is currently undergoing a significant stress test due to an ongoing regional crisis, which has introduced a level of caution reminiscent of the pandemic era. This assessment comes from a recent credit analysis released by S&P Global Ratings, which indicates that while there is no immediate cause for alarm, the market’s resilience may be limited.
According to S&P, official sources have reported a decline in transaction volumes since the onset of the conflict. The agency had already anticipated a moderation in Dubai’s property market following years of rapid price increases, and some cooling was factored into its base case. However, the current crisis has altered the outlook, leading S&P to predict declines in both transaction volumes and residential prices. The extent of any correction is expected to correlate directly with the duration of the ongoing situation.
Luxury Market Sentiment Weakens
The luxury and ultra-luxury segments of the market are likely 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 choices may reconsider their investments. The agency anticipates that apartment prices will decline more than villa prices, attributing this to a substantial supply pipeline for apartments.
Market activity is also expected to shift, with a decline in presales for new developments and an increase in secondary-market supply as investors seek to offload properties. Foreign investors holding units nearing completion are identified as likely sellers, a trend that could further suppress market values.
Structural Challenges in Off-Plan Sales
S&P highlights a structural characteristic of Dubai’s off-plan market that complicates the situation. Developers often sell units on aggressive payment plans, collecting approximately 20-25% in the first year, with up to 70% tied to construction milestones and the remainder due at handover. While this structure allows projects to progress as long as defaults remain manageable, it exposes a significant portion of future cash flow to buyer sentiment and financial stability.
The Four-Week Threshold
S&P emphasizes the importance of timing in its analysis. The agency’s base case assumes that the most intense phase of the conflict will last up to four weeks. Under this scenario, S&P does not foresee a collapse akin to the 2008 crisis. However, if hostilities extend beyond this period, a meaningful market correction becomes a realistic possibility.
The Strait of Hormuz is flagged as a specific risk factor for the construction sector. A prolonged disruption could lead to bottlenecks in the supply of building materials and increase costs due to rerouting and higher fuel prices. Currently, construction activity in Dubai continues normally, reflecting the city’s historical ability to maintain project timelines even during disruptions.
Developer Resilience Amid Rising Risks
A critical question is whether the conflict will trigger outflows of residents or investment capital. S&P believes that structural reforms, such as the Golden Visa program granting long-term residency rights to foreign nationals linked to property investments, provide a degree of insulation. This creates a sense of stability 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 so far bolstered resident confidence. Although sentiment may weaken and some expatriates may leave if the situation continues, S&P does not expect a sudden mass exodus that could lead to a market collapse.
The agency also raises concerns regarding physical risks to assets. Companies with high-value properties, including airports, ports, hotels, and tourism landmarks, face increased exposure to potential disruptions. Minor damage to real estate assets has been observed, but it is not beyond repair.
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 protected accounts, with withdrawals permitted only upon verified construction milestones.
This structure, combined with multi-year revenue backlogs, provides a cushion for these developers. 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 could be higher for less established players. Developers that entered this period with higher debt levels may face increased pressure, making financial discipline essential.
Liquidity and Investment Outlook
All four rated developers entered this period with substantial cash reserves. By the end of 2025, each held escrow balances sufficient to cover construction costs. Emaar reported $11.7 billion in escrow and $7.5 billion in available cash and liquid investments, while Damac reported $6 billion in escrow and $1.7 billion available.
S&P distinguishes within the group, noting that 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 notes that Emaar faces broader challenges than its residential-focused peers, including declining hotel occupancy, reduced foot traffic in malls, and lower revenues from entertainment assets. The company also has the largest planned capital expenditure, estimated at AED 10-11 billion annually in 2026 and 2027, although a portion of this remains flexible.
Developers are expected to adjust 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 remain subject to board review but are expected to remain elevated relative to historical levels.
The Broader Picture
S&P’s analysis is framed 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, stronger developer balance sheets, and a more stable resident base.
However, the agency’s conclusion is clear: the longer the conflict persists, the greater the pressure on prices, sentiment, and liquidity, increasing the likelihood and severity of a market correction.
As reported by gulfbusiness.com.
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Published on 2026-03-16 11:00:00 • By Editorial Desk
