UAE developers change strategy to adapt to softening market
Many of them made fundamental shifts in operations to boost earnings this year
UAE property developers responded to a softening in the industry as more supply came online, with many making fundamental changes to their operations this year to boost earnings.
A Dh30-billion partnership between the country's two biggest listed real estate companies, Emaar Properties and Aldar Properties, in March helped fuel investor confidence in the market. Aldar spun off $5.4bn of revenue-generating assets into a new subsidiary, Aldar Investments. In September, the planned sale by Emaar Hospitality of five of its flagship Dubai hotels to an Abu Dhabi National Hotels, and the continued foray into the expanding middle-income segment by developers including Aldar, Bloom Holding and Nakheel Properties, also illustrate the strategic thinking of the industry leaders.
For some companies, consolidation strategies started to bear fruit. Dubai contractor Arabtec more than doubled its earnings year-on-year in the third quarter to Dh181 million, thanks to project wins and an ongoing reorganisation. Revenues grew 12.7 per cent during the period.
Going into 2019, robust supply will persist. Oil prices rising to above $80 per barrel in the summer and an increase in construction activity ahead of Expo 2020 Dubai boosted sentiment and prompted growth this year. However, rising supply may keep prices low, even if this indicates a maturing market, commentators say. “Property prices are expected to continue to decline as we are most likely to see the materialisation of residential supply double, if not triple, the amount of units from past years,” said Lynnette Abad, director of research and data at UAE portal Property Finder.
A total of 19,881 residential units had been completed in Dubai this year as of October, Property Finder said, with an additional 14,707 due to be completed by the end of the year. A further 33,982 units are under construction, about 65 per cent of which are to be completed in 2019.
Analysts point to a renewed sense of optimism, while noting that the "tenant’s market" that characterised 2018 will continue next year. “Prime residential areas, which saw relative resilience in 2018, may continue to see some improvement,” consultancy Valustrat said in its 2019 outlook this month.
On the flipside, there is evidence that some companies face challenges.
Damac Properties, which is grappling with $1.45bn of debt, reported a 68 per cent annual profit drop for the third quarter, its fourth consecutive quarterly decline. Having already made a series of cost efficiencies, it is taking further action, there will be no new financing or land acquisitions until it brings down debt to below $1bn over the next three years. Meanwhile, Dubai contractor Drake & Scull International presses on with restructuring as its losses widen.
The latest reports from consultancies JLL, CBRE, Cavendish Maxwell and Core Savills suggest sales and rental prices are still falling in the UAE. JLL’s third-quarter update said the Dubai residential market has softened, with high single-digit yearly declines in sale prices and rents, and a further 2 per cent drop from the previous quarter. The picture in Abu Dhabi is similar, with residential rents and sale prices declining a further 2 per cent quarter-on-quarter in Q3.
At Cityscape, developers showed they are adapting to consumer demand in the affordable segment by offering flexible payment plans and other incentives to elevate confidence. Egyptian investment bank EFG Hermes reported that the total value of real estate sales transactions in Dubai was up 56 per cent year-on-year to Dh15.7bn in the third quarter, and 18 per cent month-on-month, suggesting that market activity is gaining momentum.
Other factors set to buoy real estate in 2019 are Abu Dhabi’s Dh50bn Ghadan 21, a three-year stimulus package aimed at boosting the economy through investment in four main areas - business, society, knowledge and innovation, and lifestyle.
The UAE’s decision in May to allow 10-year visas for expatriates and 100 per cent foreign ownership in companies outside free zones is also expected to propel the economy forward. “Long-term visa security should increase the investor pool and extend the market cycle with longer term hold periods,” JLL said in its report. “We anticipate a healthier market appetite in the long run.”
Updated: December 26, 2018 11:17 AM