The sale of prized properties at Dubai's largest developers will deteriorate their ability to earn future revenue.
Developers sell top assets to pay off debt
The business model of property developers in the Emirates was supposed to increase their rental income and other recurrent revenue, but looming debts are forcing these companies to sell some of their most prized assets.
Emaar Properties, the largest developer in the region, has sold about Dh530.2 million of investment properties in the first nine months of this year, according to financial statements released yesterday.
The company made a healthy profit of Dh359m on those sales, but it lost high-end office buildings that were yielding returns as high as 10 per cent a year. At least one of the buildings was among the sought-after Emaar Square properties near the Burj Khalifa in Dubai.
Likewise, Union Properties said this month it had sold the Ritz-Carlton hotel next to the Dubai International Financial Centre. Considering its brand and location, the hotel could have been a major money-spinner at a time when the sale of land and off-plan apartments has all but stopped.
To make matters worse, the profit margin on the sale was razor-thin. The final price of Dh1.1 billion was a considerable discount on the asking price of Dh1.5bn.
Debt is causing problems across the board for developers.
Still, Emaar has stood out from the pack in diversifying the way it makes money. In making a profit of Dh612m for the third quarter, Emaar far outperformed Aldar Properties and Deyaar Development, which both posted major losses for the period.
Emaar's hotel and mall ventures are likely to be the company's saving grace in the years ahead, but having to sell some of its prized Dubai properties will hurt in the long run.
While cash is needed to help pay off Dh4.8bn of debt coming due within a year, Emaar would surely have liked to hold on to the returns - which were considered to be among the highest in town.