Emaar Properties's Islamic bonds are outperforming peers this year as Dubai's economic recovery spurs new projects, while luring homebuyers and shoppers to the emirate.
Emaar's 2016 sukuk yielded a record 3.92 per cent on Jan. 11, down 49 basis points, or 0.49 percentage point, since December 31, according to data compiled by Bloomberg. It was at 3.95 per cent on January 18. The average yield on Islamic notes of Gulf Cooperation Council companies dropped almost half as much and that on global real estate debt was little changed.
The developer of the world's tallest skyscraper started a new luxury hotel project in Dubai last week as part of an expansion, including malls, that benefits from the fastest economic growth in five years. Home prices jumped in some parts of Dubai in 2012, four years after one of the world's worst property crashes. The UAE Central Bank set new caps on mortgage lending in the past month to tame the revival.
"People in the region, Indian subcontinent and Russia prefer to come, live and do business in Dubai, which is supporting demand for property," Mark Watts, Abu Dhabi-based head of fixed income at National Bank of Abu Dhabi, said yesterday. While loan caps will damp consumer demand, "optimists view this as reducing the risk of another bubble and therefore lengthening any property-related bull market," he said.
The yield drop in Emaar's Islamic notes in January puts it on course for the biggest monthly decrease since October. The HSBC/Nasdaq Dubai GCC Corporate US Dollar Sukuk Index yielded 2.97 per cent on January 18, down 21 basis points since December 31, while the yield on the Bank of America Merrill Lynch Global Real Estate Index fell one basis point to 2.85 per cent.
Dubai, which was on the verge of defaulting in 2009, witnessed a pick up in tourism in 2012, with hotel and restaurant industries expanding 16 per cent in the first half. Estimated economic growth of 5 per cent last year would be the fastest since 2007, according to government forecasts.
Emaar, 31 per cent owned by Dubai's government, is a beneficiary of the revival as it derived 82 per cent of revenue domestically in 2011, data compiled by Bloomberg show. The company said January 19 it started developing the Address Residence Fountain Views in the city centre, comprising 280 apartments.
"Emaar is the solid play that is available to investors to ride the recovery in Dubai's economy and that's definitely the lead in the tourism and trade business units," Tariq Qaqish, deputy head of asset management at Dubai-based Al Mal Capital, said.
Among Emaar's plans is to expand Dubai Mall, the world's biggest shopping complex by area. The emirate is hosting its annual month-long shopping festival this month, which attracts millions of visitors each year according to the government.
Increased appetite for Dubai's debt sent Emaar's sukuk yield down 3.79 percentage points in 2012 as demand for properties in some neighborhoods recovered following a plunge of more than 65 per cent. The average sale price of a mid-range villa soared 31 per cent in the year to December, according to data from property broker Cluttons.
* Bloomberg News