Dubai developer losses is telling on stocks

Dubai developer losses is telling on stocks
Dubai developer losses is telling on stocks

Thank you for your reading and interest in the news developer losses is telling on stocks and now with details

Aden - Yasmin Abdel Azim - Losses have shot up for developers listed on Dubai Financial Market, and that is casting a shadow on their stock performance. Image Credit: Al Khaleej Today Archive

Dubai: With some of Dubai’s leading listed developers taking losses in 2019, concerns are cropping up over how this decade will shape up for them. And this has analysts wondering what all of this could mean for the stocks.

With the majority of real estate firms having already reported, Damac and Union Properties slipped into losses, while Deyaar reported Dh15 billion in accumulated losses. Developers are now having to make do with fewer-than-usual projects amid a protracted downturn in an oversupplied space.

Heavyweight Emaar Properties too felt the investor heat after recording flat year-on-year growth in profit and a decline in revenue. This is unsurprising as Dubai has been through a slowing real estate market for much of the previous decade, with the exception of a brief pick up between 2012-14.

And with residential property supply set to hit an all-time high in 2020, prices and rentals will only come under further pressure, say analysts, which in turn will hurt stocks with exposure to real estate. “We do not see evident catalysts that will drive stock prices higher at this stage,” said Mohamad Al Hajj, an equities strategist at EFG-Hermes.

More declines

Developer stocks have already set the tone for the downward trend seen so far this year. Damac declined 12 per cent in the year-to-date, Union Properties has shed 25 per cent, and Deyaar is down about 18 per cent. Even blue-chip Emaar dropped 4 per cent.

Although Union Properties lost over 80 per cent of its market value in the last five years, Damac over 70 per cent, and Deyaar nearly 60 per cent, the rate of decline was seen slowing the last three years. The wider Dubai property market was relatively stable over the period, with 2018 witnessing a hike in activity that was led by a surge in land transactions – a trend which continued at a normalized rate in 2019.

Although there was some downward pressure on pricing, it’s not been aggressive enough to indicate a major correction in the market, the EFG-Hermes analyst added.

Limited Expo pickup

“We see limited impact from Expo 2020 on the property market, in general, with some short-term positive implications on the hospitality and entertainment sectors,” Al Hajj added. “A number of macro initiatives failed to reflect positively on the sector’s activity and, in turn, respective stock prices.”

Booster shots

The UAE government had announced the launch of a permanent residency scheme to boost foreign investments, while Dubai formed a committee to regulate new project launches and boost long-term outlook for real estate. “We expect real estate stocks, in general, to underperform the general market index in 2020,” Al Hajj added.

Hope is there

A glimmer of hope, however, may come from Abu Dhabi, with the emirate’s top developer Aldar Properties posting a 7 per cent upturn in annual profit, while declaring higher dividend and a rosier outlook. Analysts cited continued “conservative financial policy” coupled with “strong liquidity” as the firm’s strengths.

“While we see no evident positive stock triggers in the short term (for Aldar), we believe the stock will continue to trade at a narrower discount to its full net asset value, given the strong earnings and cash flow visibility,” Al Hajj added.

Aldar is 37.3 per cent owned by Mubadala Investment Company, which is wholly-owned by the Abu Dhabi Government. With all of its assets are located in Abu Dhabi, it has been sheltered from oversupply risks threatening companies with exposure in Dubai.

While performance in Abu Dhabi’s residential market remains subdued as a result of an increase in launches and deliveries and a weaker economic backdrop, “We are witnessing a moderation in price and rental rate declines,” said Taimur Khan, Associate Partner at Knight Frank M.E..

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