Real estate in Dubai, falling sukuk

It is not only the stocks of the Emirati real estate galaxy that are suffering from the explosion of the US-Iranian conflict that is setting the Middle East ablaze. In recent years, the real estate frenzy has prompted real estate developers to multiply the financial instruments - from Islamic bonds (sukuk) to private credit - needed to grab the land with the best locations and to ground major luxury development projects. While the Dubai financial market's real estate index has plummeted more than 18% since 27 February, corporate bonds have also produced the worst performance among emerging markets this month.

According to Bloomberg, five-year sukuk (Islamic green bonds) are suffering. Those issued in September by Dubai-based Sobha Realty saw an 8.5 per cent drop this month. The five-years of Binghatti Holding Ltd, sold in February, and Arada Developments LLC lost 7.8 per cent and 6 per cent respectively. Damac's bonds maturing in April 2027 held up much better, losing only 2.5 cents, while those maturing in August 2029 lost almost 5 cents. The length of the conflict but also the unpredictability of further risks and the economic resilience of the area weighed on the medium term, perceived as riskier.

Fitch placed the long-term credit rating (BB-) of Binghatti Holding Ltd. and its senior unsecured debt on Rating Watch Negative (Rwn). This action reflects rising geopolitical risks in Dubai and concerns that they may affect housing demand and liquidity, despite the solid operating performance recorded through early 2026.

After all, in 2025, the issuance of real estate bonds in the UAE exceeded USD 6 billion, more than twice as much as in 2024, which had already been a record year. Another USD 2.7 billion of debt was issued between January and February alone.

The most recent issue, on 10 February, was by Binghatti Holding Ltd, which placed five-year bonds worth USD 500m, in a transaction that saw demand exceeding supply by more than 4.4 times.