Moody's: Building Costs Up 25% — Why Developer Quality Now Decides

The single most important line in the Moody's report

A Moody's Ratings report released at the start of July found that imported building material costs across the UAE have risen between 20 and 25 per cent compared with pre-conflict levels, according to Easternherald and The National. The rating agency tied the increase to supply-chain disruption following the US-Iran military confrontation, which forced contractors to reroute shipments, accept longer delivery timelines and pay the premium that came with both.

For an investor, the headline number matters less than what it exposes: the cost base for a residential project that broke ground in early 2026 is materially different from the one its team modelled a year earlier. That gap does not fall evenly across the market. It lands hardest on the developers least able to absorb it — and that is where the real story is.

Why the biggest developers are, for now, the safest

Moody's found that the UAE's largest developers — Aldar Properties, Emaar Properties, Damac Real Estate and Arada Developments — entered fixed-price construction contracts and locked material costs ahead of the disruption. That protection runs for approximately 12 months from the point of signing, meaning pipelines that originated before the conflict are largely insulated from the surge.

The agency's language was deliberately measured. Contractors "appear able to absorb the additional pressure for now," Moody's said, noting margins strengthened during the recent upcycle. The buffer is real but time-limited. Crucially, the agency observed that "scale, reputation and operational capabilities are emerging as key differentiators" between developers that can sustain the pressure and those that cannot.

Smaller developers that did not lock in pricing before costs rose are in a harder position, with Moody's warning they carry higher execution risk. In plain terms: the pipelines that hedged will deliver broadly as planned; the ones that did not may face margin compression, delivery delays, or both.

The market split: Dubai versus Abu Dhabi and Sharjah

The second, more visible divergence is in demand. Moody's data shows Dubai's off-plan transaction values fell more than 50 per cent in June compared with February. Abu Dhabi and Sharjah, by contrast, held up considerably better, supported by domestic buyer demand that has proved more resilient than the investor-driven demand characterising Dubai's market, as reported by both Easternherald and The National.

This is not incidental. Dubai's market, even after record transaction years in 2024 and early 2025, draws disproportionately from international capital. When global investors reassess risk — because of regional conflict, elevated financing costs, or both — Dubai's off-plan volumes are among the first to reflect the shift. Abu Dhabi and Sharjah lean more heavily on residents and domestic buyers, a base tied to local employment and sentiment rather than offshore capital flows. The same disruption therefore produces two different market responses, and the Moody's figures confirm exactly that.

Reading the numbers carefully

A 50 per cent fall in off-plan values sounds dramatic, and it should be treated seriously. But context matters. February to June is a short window, February follows a period of exceptional volumes, and a fall in transaction value is not the same as a fall in prices — it reflects fewer or smaller deals, not necessarily a repricing of existing stock. Off-plan volumes are inherently more volatile than the secondary market because they respond quickly to sentiment and launch timing. The signal here is a cooling in speculative, internationally-driven off-plan activity, not evidence of a broad price correction.

What the data does establish cleanly is a widening quality gap. In a rising cost environment, the developer's balance sheet, its procurement discipline and its track record on delivery become far more important than they were during the easy part of the cycle. A cheaper payment plan from a thinly capitalised developer is a very different proposition when material costs are moving 25 per cent against the project.

The Abu Dhabi angle

Abu Dhabi's relative resilience is the constructive takeaway. A market anchored more in domestic and resident demand behaves defensively precisely when internationally-driven markets wobble. That does not make Abu Dhabi immune to construction cost pressure — the same materials build both emirates — but it does mean its demand base is less likely to evaporate on a change in global risk appetite. For investors seeking lower volatility within the UAE, that structural difference is worth weighing rather than assuming Dubai and Abu Dhabi move as one.

The practical conclusion from the Moody's work is not "avoid off-plan". It is that this is a moment to be more selective about who you buy from, and to understand which demand base sits underneath the market you are entering.