UAE contractors are absorbing higher costs of building materials in order to preserve growth in the country's real estate market in the aftermath of the Iran war, a Moody's report has found.
The cost of imported building materials has increased by up to 25 per cent compared to pre-conflict levels, according to developers.
The elevated costs result from disrupted supply chains during the conflict, which forced the rerouting of material shipments and led to longer wait times.
Most developers rated by Moody's — Abu Dhabi's Aldar Properties, Dubai's Emaar Properties and Damac Real Estate, and Sharjah's Arada Developments - primarily use third-party contractors, while others such as PNC Investments and Binghatti Holding have integrated or related-party construction capabilities.
In either case, these companies are generally protected in the near term, either by construction contracts with fixed prices or by locking in material prices in advance, Moody's noted. This would limit the effect on developers' cash flows and margins through the next 12 months, it added.
"Contractors appear able to absorb the additional pressure for now. Their margins strengthened during the recent upcycle in the UAE real estate market, providing some buffer," Moody's said.
"In addition, labour shortages have eased compared to pre-conflict conditions, helping to sustain their operations."
Developers are also supporting contractors in maintaining project momentum.
That has resulted in construction projects continuing as planned and inventory levels remaining adequate, the report added.
"Developers are taking steps to preserve liquidity, according to conversations with our rated companies ... Supply chains have been rerouted, albeit at higher cost and with longer lead times. Overall, resilience to date has exceeded the expectations of many market observers."
Meanwhile, on the demand side, Abu Dhabi and Sharjah have shown the strongest resilience amid an increase in buyers from the domestic market, Moody's said.
Aldar, Abu Dhabi's largest listed developer, has been on a development and acquisition spree to boost its portfolio and bring more units to the market.
Dubai, on the other hand, is more investor-driven, with off-plan transaction values down more than 50 per cent in June when compared with February, according to data from the Dubai Land Department.
Developers continue to maintain discipline in pricing and payment plan structures, offering incentives such as registration fee waivers to attract more buyers, Moody's said.
"Some [developers] also benefit from vertically integrated business models, which provide greater control over procurement and construction processes. These advantages are particularly important in the current disrupted logistics environment," Moody's said.
The UAE's property market has largely weathered any negative impact from the war, with continued investments by domestic developers in megaprojects and interest from both local and international investors.
The Emirates has been ranked as the world's leading real estate investment destination, as the industry retains momentum amid challenges posed by the Iran war, Arada's UAE Property Investment Index showed last month.
Despite the operational and financial resilience of UAE developers, Moody's cautioned that a degree of uncertainty remains for the overall market in the coming quarters.
For smaller developers, who may launch projects speculatively amid softer demand, execution risks are higher, which in turn could increase unsold inventory and capital commitments, Moody's said.
"Credit profiles of developers will continue to be shaped by the geopolitical landscape, foreign investor sentiment, population trends, upcoming supply from under construction projects, and payment structures of new project launches, including the degree to which these allow issuers to fund construction expenses," the report added.
