Profits at publicly listed companies in the UAE fell by 17.9 per cent to Dh8.3 billion (US$2.26bn) in the third quarter compared with the same period last year, dragged down by sluggishness at property and construction firms.
The decline was felt across most sectors, according to an analysis of the results by The National, but property and construction companies were by far the worst-performing group for the quarter.
Combined profits at the 20 companies under that heading fell by about 98 per cent, hit by losses at Aldar Properties in Abu Dhabi and at Union Properties and Deyaar Development in Dubai. Aldar lost about Dh731 million, Union lost Dh452m and Deyaar came out Dh145m in the red.
With continued falls in property prices, poor investor appetite and sluggish construction activity, once high-flying construction and property companies collectively made about Dh33 million in the third quarter, a far cry from the Dh1.7bn they made in the same period last year. Many property companies wrote down the value of their projects and property investments during the quarter, which also hit profits.
"Year on year results were disappointing and were punctuated with a lack of sales, delays in delivery handovers of existing projects and a number of non-cash provisions and property impairments," says Chet Riley, a property analyst at Nomura in Dubai.
Analysts and government officials point to a coming glut of new apartments and offices as evidence that property markets in Dubai and Abu Dhabi may need still more time to recover since registering large price declines starting at the end of 2008.
Many projects have been cancelled and construction activity has slowed as a result of the financial crisis - about $569bn worth of developments have been shelved or put on hold in the UAE as of September, according to Bank of America Merrill Lynch figures. But other projects are nearing completion or have recently been finished.
And that is expected to flood the market with thousands of new units in the coming year, potentially spelling further price declines.
"There is supply coming, there's no denying," Mohammed al Shaibani, the director of the Dubai Ruler's Court, told the Financial Times last week. "From one side, I think this is good for Dubai because it's making Dubai very attractive … The more cost-effective, the cheaper the properties, the cheaper the rental, most likely the more people will be coming to Dubai. So I think the residential will be [resolved] very quickly, but the offices will take a bit of time."
How such a resolution might take place remains unclear, but one thing developers sorely need if they are to return to rising profits, Mr Riley says, is more financing from banks to build a product they can sell. Banks, however, continue to restrain lending. And they are especially wary of lending to developers and construction companies that were partly responsible for a pronounced rise in loan defaults after the crisis.
Banks had set aside Dh37.8bn as of the end of September to cover bad loans, up from Dh27.8bn a year before. A large proportion of those provisions are due to big debt restructurings at Dubai World and now Dubai Holding, a pair of government-linked conglomerates, but much of the provisioning is also the result of loan defaults by developers, contractors and construction outfits.
Those factors have not helped bank profits, which were down by 2.9 per cent in the third quarter compared with the same period last year.
"The banks have much weaker balance sheets compared to the rest of the emerging markets, so you can see the GCC as similar to the US," Turker Hamzaoglu, an economist at Bank of America Merrill Lynch, said recently. "Even if you've got these lower interest rates and expansion in liquidity, the credit growth is not picking up because of the underlying weakness in banks and the real estate sector."
The UAE's two telecommunications companies, Etisalat and du, also registered an overall decline in their quarterly profits. The newcomer du more than doubled its profit compared with last year's third quarter as it gobbled market share from Etisalat, the country's reigning telecoms giant. But profit at the much bigger Etisalat fell by almost 23 per cent to Dh1.7bn.
The best-performing listed companies by far for the quarter were in the energy sector, where Dana Gas and Taqa in Abu Dhabi had collective profit growth of 186 per cent.
The quarterly results are another reminder that the strains of the global economic downturn have yet to end despite measured improvement in the developed world and emerging markets alike.
At the same time, profits at listed companies in the UAE are not a perfect measure of how the broader economy is faring, economists say, largely because of the under-representation of the energy sector. Energy is the largest contributor to economic output in the UAE, which sits on some of the world's largest reserves of crude oil. But Dana Gas and Taqa are the only two energy companies that are publicly listed.
The tourism, hospitality and retail sectors are another under-represented segment of the economy, with just three listed companies.