Dubai’s residential property sector rebound has reaped huge profits for the emirate’s developers and landlords.
Yet for equity traders, there is really only one investible conglomerate: Emaar Properties and its subsidiary, Emaar Development.
There has been upheaval among second-tier developers listed on Dubai’s bourse, while the other major players, such as Nakheel, Dubai Properties and Azizi, are privately owned.
Since the early days of the pandemic, demand from wealthy foreigners helped to end a half-decade market malaise. Consultant ValuStrat’s Dubai residential price index was at 98.9 points in October, up 2.4 percent from September and 16.8 percent higher compared with a year earlier.
The index has gained 51 percent since a record low of 65.4 in April 2020. The base level was 100 in January 2014.
Despite this resurgence, Union Properties and Deyaar Development have struggled with multi-billion dirham accumulated losses and their share prices are a fraction of their 2014 highs, while rival Damac Properties delisted from Dubai’s bourse in March 2022.
As such, Emaar Properties and Emaar Development, the conglomerate’s “build-to-sell” development business, are the only real choices for risk-averse equity traders seeking exposure to Dubai real estate.
“Emaar is one of the few listed Dubai developers that meets international standards when it comes to financial reporting and communication with investors,” said Mohamad Haidar, an analyst at Arqaam Capital.
For Sara Boutros, sector head for real estate and financials research at Cairo’s CI Capital, Emaar Development is a proxy for Dubai’s real estate sector, whereas Emaar Properties, which includes its hospitality and retail divisions, is more of a play on the emirate’s economy.
“We’re more bullish on Emaar Properties than Emaar Development because real estate price increases are slowing and we’re watching closely to see if demand from Russian buyers, which was the main driver of price growth, will persist,” she said.
Dubai property prices will fall 5-10 percent over the next 12 to 18 months, S&P Global Ratings said in a report last week.
Yet a pullback could benefit Emaar in terms of expanding its market share.
“In a tough market, Emaar will probably do better, while in a strong market all developers fare well, even the weaker companies,” said Boutros. “In a weak market, Emaar’s brand reputation and execution capacity will be important – there will be a flight to quality.”
Emaar has maintained a 30 percent market share of Dubai residential property sales while also expanding its sales revenue 25 percent year on year, according to Arqaam Capital estimates.
As of November 20, Emaar Properties’ shares had climbed 21 percent in 2023. Emaar Development was up 56 percent over the same period.
“This year’s gains partially reflect the strength of Dubai’s property market, but we believe both Emaar Properties and Emaar Development remain undervalued,” said Haidar.
Emaar Properties’ shares are still down about 66 percent from a 2005 all-time high and 25 percent below a more recent 2014 peak, according to investing.com.
“Emaar’s business hasn’t changed that much over the past two decades, but Dubai’s macroeconomic outlook and regulatory environment is much stronger today,” said Haidar.
“Demand for real estate in Dubai is much healthier compared to previous booms, with more end-users buying compared with the speculating buying of the past, which wasn’t beneficial for the overall market in the long term.”
Emaar Properties’ stock ended Monday at AED 7.12 ($1.94), while Emaar Development closed at AED 6.79.
Arqaam has buy recommendations on Emaar Properties and Emaar Development, setting target prices of AED 9.26 and AED 8.70 respectively.
Likewise, CI Capital has overweight recommendations on both companies. Its price targets are AED 11.0 for Emaar Properties and AED 8.80 for Emaar Development.
Emaar Properties’ nine-month profit was AED 8.24 billion, up from AED 5.79 billion a year earlier despite revenue declining slightly – following its sale of fashion retailer Namshi in February – as costs tumbled.
Emaar Development made a nine-month net profit of AED 4.06 billion, up from AED 2.84 billion a year earlier.
As per accounting rules for real estate developers, Emaar books revenue from off-plan property sales as construction reaches certain milestones. So, Emaar is now recording income from off-plan sales that were made since property prices began their spectacular rebound, Boutros explained.
“This is expanding Emaar’s margins,” she said.
Construction costs in the UAE have increased by about 7 percent this year, Arqaam estimates. Yet developers’ margins have grown thanks to sales prices rising substantially more, said Haidar.
“Higher prices have more than offset cost inflation,” he said.
Cash buyers account for around 80 percent of Dubai residential property sales, with the remainder financed via mortgages. As such, the surge in UAE interest rates from near-zero in early 2022 to 5.4 percent currently, has failed to stifle demand.
“There has been a slowdown in off-plan sales, but secondary market sales are still strong,” added Haidar.
For a detailed perspective on the property market, visit: Dubai - Real Estate Review Q3 2023
