Property Firms May 
Post Lower Results
 On Poor Land Sales

Property companies in the UAE are expected to post lower second quarter earnings on weaker revenue from land sales as the global economic meltdown continues to take its toll on the country’s once-booming real 
estate sector. Deyaar Development on Sunday reported that its second quarter earnings plunged by 69.5 per cent from the year before to Dh75.4 million. Sharjah-based RAK Properties on Wednesday said its net profit fell nearly 34 per cent from a year ago to Dh73.3 million. “Earnings will not be a key driver for the property companies this year, given the backdrop of weaker sales and a lacklustre overall environment,” said Sana Kapadia, property analyst 
at EFG-Hermes. Dubai’s property market which enjoyed unprecedented growth for five years until late last year, has been the hardest hit in the Gulf region. House prices tumbled more than 50 per cent from their peak last September, and most analysts said the bottom has not been reached and expect prices to further fall by another 20 per cent for the remainder of the year. The emirate has seen house and rental prices declining as supply continues to outstrip demand, with scores of expatriates that previously fueled demand losing their jobs and sent back home. “Property companies will struggle to drive earnings growth over the next several quarters.

Handovers will remain choppy in the second half with investor default on the rise, hence visibility concerns will most likely linger,” said Saud Masud, real estate and construction analyst for the MENA region of UBS AG. Al Mal Capital said that majority of stocks it covers are likely to post challenging results compared to a year ago, but expects “sequential” improvement from this year’s 
first quarter. It is forecasting Emaar Properties’s second quarter profit to nosedive by 80 per cent to Dh324 million from Dh1.66 billion a year earlier, but earnings will go up by 37 per cent from the first quarter of 2009. UBS AG expects Emaar earnings in the second quarter to reach just Dh239 million. Al Mal Capital said Emaar should benefit from accelerating contribution from Downtown Burj Dubai handovers in 2009. “With the majority of Emaar’s revenue and profits for this year to be driven by handover of units in its Downtorun Burj Dubai development, we expect an improving sequential trend in estimates from the second quarter to te fourth quarter, albeit at a lower rate given the possible delay in the completion of the Burj Dubai tower from September to December,” said Bobby Sarkar, property analyst at Al Mal Capital. Earnings of Abu Dhabi-based Aldar Properties are expected to tumble by 88 per cent from last year to
 Dh145 million.

“We expect the the company to record no land sales in the second quarter, much like the first quarter. We also remain skeptical of Aldar’s ability to replicate almost Dh920 million in revaluation gains on land that the company recorded in the first quarter,”
 said Sarkar. Al Mal Capital expects Sorouh Real Estate, Abu Dhabi’s second biggest property company to post a 40 per cent drop in earnings or Dh410 million compared to Dh687 during the same period in 2008. EFG-Hermes said Sorouh is likely to post a 38 per cent decline to Dh424 million, while UBS AG said Sorouh’s earnings will dip to 
Dh90 million. “Sorouh (is expected) to report sequentially improving numbers as we progress through 2009, but management’s decision to refrain from new land sales should weigh on results,” said Sarkar. The only gainer in the second quarter is Union Properties whose earnings will come from its Motor City handovers in the second quarter, but lack of funding could stall the completion of its Limestone House/Ritz Carlton Hotel projects. Al Mal Capital expects earnings during the period to surge by a hefty 115 per cent from a year ago to Dh682 million. EFG-Hermes is forecasting a 152 per cent increase in earnings at 
Dh801 million. “Union Properties should enjoy higher revenues and margins as it starts handing over its Motor City project beginning in the second quarter,” said Al Mal Capital.