Persistent talks of a bubble bursting wide open in the UAE real sector poses an uphill struggle next year for Emaar Properties, the biggest property developer in the Gulf region. Property developers like Emaar in Dubai are starting to feel the painful effects of a sharp drop in new buyer appetite, combined with a drop in property prices exceeding 20 per cent in certain areas, Shuaa Capital said in its latest research. The region is bracing for a deceleration of the vaunted property sector, especially Dubai with the global recession most likely taking a turn for the worse, dampening oil prices and further squeezing liquidity. Over the next six to 12 months, we expect this emerging reality together with the declining mortgage availability to suppress Emaar sales volumes on apartments, villas and land plots in the UAE, said Shuaa Capital.
Amid lingering concerns about a slowing growth in the region, Nakheel PJSC, the developer of the palm-shaped islands in Dubai and other major property developers, are already scaling back on their projects and drastically trimming their workforce. Jittery investors saw these dark clouds looming early on and unloaded their stakes in some of these companies. The recent turmoil in global financial markets saw lot of foreign investors exiting the UAE markets, As a result, foreign ownership in Emaar declined from 12.4 per cent in April 2008 to 5.9 per cent as of October,” said SICO Research in a market note. Emaar’s revenue may also be affected by the implementation of a new accounting method which requires real estate companies to use the completed contract method. This has the potential of affecting Emaar’s revenue and earnings adversely in the coming years but it would not have any impact on cash flows,” said Ambereen Jiwani of SICO Research. Emaar posted a revenue of Dh12.52 billion in the first nine months, 1.6 per cent lower from a year earlier, with apartment and villa sales revenue declining 24 per cent and 4.6 per cent, respectively. This was offset though by the rise in revenue from land and commercial property sales and a 73 per cent growth in recurring revenue from hospitality and rental properties, bringing the nine-month net profit to Dh4.82 billion, little changed from a year ago’s net profit of Dh4.84 billion.
The negative investor sentiment, impending oversupply in the Dubai real estate sector and restrictions imposed to weed out speculators, have kept investors away from Emaar stocks, resulting in a steep plunge of more than 80 per cent since the start of the year. While funding may be difficult to come by as banks tighten lending criteria, interest in Emaar shares will be helped by economic bailout plans pledged by governments, said Vyas Jayabhanu of Al Dhafra Financial Brokerage. UAE markets are likely to start trading higher once the economic relief packages in the US for instance, kicks in. It is difficult to paint all property stocks with the same brush. Some developers may see further downside from here, but developers with healthy balance sheets should be able to weather the storm.
