The disruption to shipping through the Strait of Hormuz has tested the resilience of the UAE's homebuilding sector, said Ms Lisa Jaeger, VP-Senior Analyst, Moody's Ratings.
Despite the headwinds, the sector is holding steady. Ms Jaeger said, “Supply chains have been rerouted, inventory levels remain adequate, and most projects scheduled for delivery in 2026 and 2027 continue to progress largely as planned. Strong building material inventory positions going into the conflict, fixed-price contracts and contractors' absorption of higher costs are limiting the credit impact on developers for now.’’
Near-term risks
In a report titled “Construction timelines remain broadly on track despite conflict disruption”, Ms Jaeger said that real estate developers in the UAE can manage risks in the near term, despite significant ongoing disruption to supply chains through the Strait of Hormuz. Construction is continuing largely as planned, inventory levels are adequate, contractors are so far absorbing most of the cost inflation, and developers are taking steps to preserve liquidity, according to conversations with 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.”
De-escalation expected to be bumpy
The signing of a memorandum of understanding between the US and Iran on 17 June, agreeing on a 60-day ceasefire and freer passage for shipping while talks for longer-term arrangements are ongoing. This is a credit positive development, but the ceasefire has already seen violations by both sides, indicating that de-escalation will likely be slow and bumpy.
Ms Jaeger said, “Under our current central macro scenario we anticipate significant disruption to persist into the autumn with normalisation of trade in 2027.
“The risk of sustained disruption increases our focus on developers’ ability to procure materials and complete projects on time. This is critical because handovers typically give access to around 20%-40% of sales proceeds in Dubai and Abu Dhabi and approximately 60% in Sharjah.”
However, feedback from rated issuers is that 2026 and 2027 deliveries remain on track. Building material inventory coverage is around two to six months with more advanced projects typically holding higher stocks of fit-out materials.
As projects approach completion, developers increase buffer inventories to ensure that missing components do not delay handover timelines. In practice, buildings are often substantially complete several months before handover. Therefore, many projects scheduled for delivery through end-2026 were already close to completion when disruptions began or had sufficient materials secured.
Contractors appear able to absorb the additional pressure for now. However, if disruptions persist into 2027, this dynamic could change, but cost increases, even if fully passed through to developers, would remain manageable.
Ms Jaeger said, “We estimate they would only increase overall construction costs by around 1.5 to 2 percentage points annually, impacting gross margin by the same amount. This assumes cost increases affect around 50% of projects, reflecting uneven exposure. It is minimal for near-completion projects where key inventory has already been procured, as well as for early-stage developments that rely largely on locally sourced materials. It also assumes any supply chain disruptions remain temporary.”
There remains a degree of uncertainty for the overall real estate market over the coming quarters. In particular, execution risks have heightened for smaller developers.