Dubai property market sends out mixed messages
Emaar Properties, the developer behind Burj Khalifa, posted a 14 per cent jump in second quarter net profit, beating analyst forecasts.
But Damac, the Dubai real estate company that owns a Trump-branded golf course, revealed yesterday that its profits fell 21 per cent in the same period.
Emaar’s higher profit margin for real estate contributed to the gain in earnings in the second quarter. Property sales in the first half soared 22 per cent to Dh10.81 billion from Dh8.9bn for the same period last year. The developer’s sales were concentrated in flagship projects that include Dubai Creek Harbour and Emaar South.
The developer is on the right track, with investment in existing projects currently at Dh49.5bn, with more than Dh40bn concentrated in Dubai.
The recovery of Dubai’s property sector is ongoing, with deals transacted in the first half rising 16.8 per cent in value, according to the Dubai Land Department. The total value of real estate transactions reached Dh132bn in the first half compared with Dh113bn for the same period last year.
But behind the encouraging numbers lurks at least one potential pitfall.
The UAE dirham is pegged to the US dollar and any rise in US interest rates will have to be reflected in the UAE. With further rate hikes anticipated, the property market could suffer from a stronger dollar and a rise in the cost of mortgages, which may dent appetite for this vital sector.
Damac Properties, the Dubaibased real estate developer and business partner of US president Donald Trump in the emirate, said second quarter net profit fell 21 per cent, missing analysts’ expectations, on the back of a slowing property market.
Net profit fell to Dh704.8 million in the three months ended June compared to Dh886.8m in the same period last year. Revenues fell 11 per cent to Dh1.57 billion compared to Dh1.75bn in the corresponding period last year, the developer said.
Analysts polled by Bloomberg forecast an average profit of Dh832m for the second quarter. Shares of Damac closed 2 per cent lower to Dh3.84 in Dubai.
“Damac’s 14 per cent drop in development income from first quarter, or 34 per cent from the same period last year, suggests that projects are taking longer to complete, and imply that Damac may miss its target handovers of 2,500 to 2,700 units by 20 per cent, if we were to assume that the handovers achieved in the first half are to be replicated in the second half of the year,” said Mohammad Kamal, an analyst at the Dubai-based investment bank Arqaam.
“New sales, which are an indicator of future earnings, are also down 18 per cent quarter-on-quarter, but remain 10 per cent higher than what was achieved in the second quarter of 2016. At this run rate, Damac’s guidance for a full year sales target of Dh7bn can be readily met.”
Damac Properties chairman Hussain Sajwani declined to comment on the results when contacted by The National. Company spokespeople were not available to comment either.
In Damac’s regulatory filing, Mr Sajwani said “the property market in Dubai continues to demonstrate further stabilisation and our medium to long term outlook remains positive as Damac continues to develop innovative products that appeal to both end users and investors.”
“Dubai continues to show economic growth in spite of the turbulence seen in 2016 with the drop in oil prices and sluggish global growth,” he added.
Though its earnings may have missed analyst estimates, the company said its booked sales stood at Dh4bn for the first half of the year and that it has delivered 1,071 units in Damac Hills, a development project in Dubai.
Sanyalaksna Manibhandu, the head of research, at NBAD Securities said the profit was well below both his and consensus estimates, but said that they were encouraging for Dubai property going forward.
“Recovery in the Dubai property market, as demonstrated by rising property transactions aided by higher volumes as well as rising unit prices, is a positive,” Mr Manibhandu said.
While Dubai property has felt the impact of low prices and a strong dollar over the past couple of years, there has been strong signs of recovery this year.
Dubai’s property sector recovered in the first half of this year with deals transacted rising 16.8 per cent in value, according to the Dubai Land Department.
The total value of property transactions reached Dh132bn in the first half compared with Dh113bn in the same period last year.
To take advantage of the resurgence Damac announced at the beginning of the month that it has awarded a Dh628m contract to Arabtec Construction to build 1,296 villas and a 55 million square foot green development. Arabtec will begin work on the project in the third quarter of this year with an expected completion period of within 24 months.
Damac has previously said that deliveries on various clusters within Akoya Oxygen will start from the second half of 2018 through to 2022.
The golf course at Akoya Oxygen is being operated by Trump Organisation and is being designed by Tiger Woods Design.
Earlier this year, China State Construction Engineering Corporation picked up a Dh117.5m contract for infrastructure work at Akoya Oxygen.