Property prices and rents in the Gulf will continue to fall in the second half of 2011, rating agency Standard and Poor's said in its new report.
As markets in the GCC region mature, S&P said it expected to see greater emphasis on urban regeneration with "a pronounced shift away from high-end residential development toward affordable housing", particularly in Saudi Arabia.
It noted that property developers in oversupplied markets, such as the UAE, are likely to continue to scale back development activities in favor of rental and management of existing property stocks.
S&P credit analyst Tommy Trask said in the report that the recent economic stimulus measures undertaken by the governments of Saudi Arabia, the UAE, Oman, Bahrain, and Kuwait "may help offset some of these negatives" through job creation and provision of home financing.
"Specifically, Saudi Arabia's possible implementation of a mortgage law to introduce mortgage products and legislation could also serve as a catalyst to kick-start demand in the domestic residential property market, which has so far fared relatively well, because of severe undersupply," Trask said.
He said real estate firms may eventually adopt real estate investment trust (REIT) status, which can bring advantages both from investor and creditor standpoints. REIT regulation can enhance real estate firms' credit quality by limiting their financial leverage and exposure to riskier activities, like speculative developments, and by promoting standardization and transparency.
Moreover, he said real estate companies in the region are confronting risk factors.