Double trouble: UAE real estate firms defenceless against oversupply and interest rates | ZAWYA MENA Edition:
The United Arab Emirates’ real estate market has been experiencing an oversupply of units across all real estate categories, ranging from residential to commercial. Over a span of two years, property prices have plummeted, weighing on developers’ profit margins and squeezing their cash flows.
Initially, lower margins were considered the cost of doing business in a saturated market whilst attempting to maintain market share. However, as interest margins contracted, global macros took another swing at property developers through the steady, but sharp, climb in interest rates, making borrowing costs significantly higher.
“Pure-play” developers have managed to manoeuvre through lower margins and oversupply by ramping up credit sales in attempt to secure future cash flows and reduce their exposure to the realty market by reducing inventory and focusing on receivables.
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