Property plans reminiscent of previous incarnations
When property outlooks corrected sharply in the 2008 global recession, Dubai first went into denial but then the United Arab Emirates tumbled through the crash. For two years of post-trauma recovery, UAE real estate was divorced from hype and appeared nearly emancipated from speculation. Now, as 2011 enters its fourth quarter, news of impending real estate growth have emerged, in conjunction with a real estate show that has in its past editions been heavily associated with the biggest marketing hypes and most outlandish project announcements.
So what to make of the ostentatious optimism that has been trumpeted at the end of last month as the 10th Cityscape real estate exhibition in Dubai run its course under the name Cityscape Global?
The major project announcements at Cityscape Global included a comparatively down-to-earth replacement project by Dubai developer Nakheel for The Palm Jumeirah, whereby a planned high-end leisure and tourism venture centered on former cruise liner Queen Elizabeth 2 will be converted into a development of town houses. The second big announcement had to surprise anyone in view of Dubai' saturated retail offerings in the local environment and the recessionary feelings in the global economy. But a mall it is. The Phoenix project will be a $544 million (AED2 billion) mixed-use development that will prominently comprise a mall complex called Phoenix Mart located near to the Dragon Mart, the UAE's largest center for everything made in the world's factory, that is, China.
The venture was announced by Meraas Holding, a local developer, in conjunction with a Chinese investment company. The wings that are supposed to make the project fly are on the one side the foreign direct investment by the Chinese partners and on the other side the occupation of the Phoenix Mart by Chinese brands who will use it as their foothold in the region. The project is modest compared with plans that Meraas had unveiled with giant fanfare at the very same Cityscape Global three years ago -- a towers-and-skybridges-and-islands-and-homes mega development on the Dubai seafront that was supposed to be realized with $95.3 billion (AED350 billion).
The third name of note to (re)surface at Cityscape Global was Dubailand. Dubailand -- the Gargantuan $50 to $90 billion (AED184 to 334 billion) concept of the world's largest individual hotel and largest hotel and leisure district replete with replica global heritage treasures in its Falconcity of Wonders -- had basically not been talked about in the past three years but according to a report in Arabian Business, the planners are at it again and aiming to put together a milder variant of the behemoth. Keeping in check with the fashions of the day it will contain, a "sustainable city".
A depressed landscape
So how did all the new enthusiasm of Cityscape Global bear on the market? On the top tier, there was no immediate cheer. That is to say, the indices for real estate in Dubai and Abu Dhabi did not register any spikes of encouragement on the share prices of the main listed real estate companies in the UAE.
In the week of Cityscape Global, the Dubai Financial Market's real estate and construction index inversely slipped 1.2 percent, underscoring the harsh truth that the first three quarters ended for this sector index with a drop of 24.1 percent when compared with the start of the year. That meant real estate and construction underperformed the DFM benchmark index, which weakened by almost 14 percent over the period, and in many sessions, the property and construction stocks were the weights that dragged the market lower.
No gains in September also for the individual stocks of the three largest listed developers in the UAE; Emaar Properties, Aldar and Sorouh. Aldar and Sorouh, the Abu Dhabi Exchange's two big listed property companies, between them mustered a market capitalization of AED6.01 billion ($1.66 billion) at the end of September and their share prices had fallen by 49 percent and 35 percent, respectively, in the course of those three quarters. Emaar Properties, still standing head and shoulder above its UAE property peers in size, has nonetheless come to have to be content with a market capitalization of AED16 billion ($4.4 billion) at the end of the third quarter 2011, as its share price fell 23 percent from the start of the year.
Emaar, which boasted in a press statement that it was "highlighting the social and economic contribution of its integrated developments" on its 540 square meters stand at Cityscape Global, was expected by analysts of Kuwait's Global Investment House (GIH) to report a third quarter net profit of $126 million (AED464 million), about 26 percent down from the same period a year ago. The GIH forecast was above those of other equity analysts.
In this underwhelming valuation setting, it seems at least understandable when a regional business publication headlined the September 28 revision of Emaar's credit rating status from "negative" to "stable" by Standard & Poor's, as an upgrade. The ratings agency, however, was careful to point out that it considered Emaar's financial risk profile to be "significant" (whatever one wants that to mean) and noted its "aggressive international growth strategy in markets where it lacks a track record and it is significantly exposed to markets subject to political risk" under "weaknesses" which were, however, mitigated by the company's "increasing earnings contribution from more stable property investment and hospitality activities" and its high quality rental assets in Dubai.
Performance data and share prices of listed real estate developers are a source of information on investor confidence in the sector but any overall outlook for real estate in the UAE not only depends on a large number of variables, including the imponderability of the global economy and its impacts on the region, but experience also says that any single market research and projection should be taken with a grain of salt. A better impression can be derived from accessing a number of views that represent the perspectives of diverse stakeholders, from investor-centric analysts to domestic realty operators.
According to a recent report published by UK-based international property consultants Knight Frank, Dubai was the ninth-worst performing market for house prices in a 12-month period from mid 2010 to mid 2011 with an annual drop of 4.7 percent to the second quarter in 2011 (and a 49.7 percent fall over the three years since the prices peaked in the third quarter of 2008).
Hoping for upticks
Local industry voices are emphasizing the positive, however, from industry leaders that were adamant in saying at Cityscape Global that the Dubai residential market has bottomed out already, to analyst firms like CB Richard Ellis Group saying they expect "upticks" of activity in the fourth quarter of 2011, focusing on the market for offices and income-generating properties.
While global real estate consultants have to deal with some time lags in assembling information on market movements, the players closest to the pulse of the market are domestic real estate agencies. According to Ryan Mahoney, the chief executive officer of UAE real estate agency Better Homes, the agencies have already seen income growth in 2011. He said revenue streams of agencies are shifting from commissions in the leasing market that have sustained agencies during the crisis years to stronger growth in residential sales market.
Even as jolly announcements of grand projects have been resurfacing in the Dubai real estate circles, international players in the construction sector are not expecting the UAE to drive their regional business. At a Dubai roundtable for construction industry players in September, the tenor among equipment suppliers and specialist companies was that the markets to lead regional growth will be Saudi Arabia and possibly Iraq, with Qatar a "wild card". The UAE is going to stay in the game because of its ability to serve as an operations hub and great regional business location. Growth in Dubai real estate construction, while existing, is not expected to constitute the greatest potential for projects any time soon.
© Executive 2011
