The property sector in the Gulf will continue to face difficulties this year, with the UAE and Qatar likely to be hit particularly hard by the knock-on effects of the global financial crisis, according to the ratings agency Moody’s Investors Service.

“We believe that the developed GCC real estate markets will be affected the most as expansion plans in these markets have assumed a steady influx of expatriates and have already witnessed a decrease in property prices and a slowdown in construction activity,” wrote Martin Kohlhase, an analyst at Moody’s. “Moody’s expects that these trends are likely to have the largest impact on the Dubai real estate market, which is the most advanced such market in the Gulf region.”

Credit conditions in the sector, particularly for large master developers, are likely to continue to worsen this year, although nearly all of them benefit from government support. Moody’s recently gave Dubai-based Emaar Properties and Dubai Holding Commercial Operations Group a negative credit ratings outlook, and placed Gulf General Investment Company, also based in Dubai, on review for a possible ratings downgrade.

“Long-term population growth rates – in excess of 5 per cent for most countries in the region – are no longer realistic in the short term and may become negative over the coming quarters as investments in commercial activities, including foreign direct investments, are drying up,” Mr Kohlhase said.

Although different countries within the GCC faced different problems, nearly all were at risk of suffering from lower demand, lack of funding, worsening consumer sentiment and a risk of oversupply, he said. “Saudi Arabia is the notable exception as it benefits from a large and growing indigenous population base and structural undercapacity for residential property, especially for low-income and middle-income families.”

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