What do developers’ financials mean for the GCC?
Paromita Dey reports on whether the mixed bag of financial performances from the region’s real estate developers will evoke a positive market sentiment
The first nine months of 2016 have remained active, despite the looming economic downturn and the slowdown in the real estate market, owing to the delay of project awards and reduced government spending.
According to the recent Dubai Real Estate Market Report Q3 2016 by global consultancy JLL, the completion of 5,400 residential units during the third quarter of 2016 marks the highest quarterly completion since Q4 2012 (when approximately 6,200 units came into the market).
The report further stated that apartment units comprised the majority (63%) of the total residential units completed during the past quarter. The largest completion of villas was the 400 units completed and delivered in Rahat Villas (the second phase of the Mudon project in Dubailand). The supply pipeline remains active, with a further 11,000 units scheduled to enter the market in Q4 2016, although not all of these projects are likely to be delivered on schedule.
Owing to the supply-demand chain, some of the major real estate developers in the region have announced their nine-month as well as their third-quarter profit numbers for the period ending 30 September, 2016.
Dubai-based developer Nakheel reported a net profit of $1.06bn (AED3.9bn) for the first nine months of this year, up 8.3% compared to $982m (AED3.6bn) for the same period last year. Net profit for the third quarter of the year was reported at $260m (AED955m), up 22%, as compared to a net profit of $213m (AED781m) last year.
Nakheel said in a company statement: “The results were on expected lines, and reflected stable market conditions. As with previous results, our development business, with its ongoing handovers of properties to customers, and the company’s growing retail, leasing and leisure businesses, all contributed to it.
“The growth in our net profit for the first nine months of 2016, compared to the same period in 2015, is a sign of a stable and mature local real estate market. The results also reflect positively on our business strategy to invest in our income-generating asset portfolio. We expect to further consolidate our position and finish the year on an even stronger note.”
Not left behind, Ras Al Khaimah-based developer RAK Properties reported a 187.9% increase in net profits, to $21.5m (AED79.1m) in the first nine months of 2016, when compared to $7.4m (AED27.4m) in the same period in 2015. Similarly, revenues over the corresponding nine-month period increased to $83m (AED305.4m) from $36.4m (AED133.8m) in 2015. To date, RAK Properties’ total assets are valued at $1.29bn (AED4.76bn) as of 30 September, 2016, an increase from the $1.293(AED4.75bn) recorded on December 31, 2015.
The Q3 2016 UAE real estate review issued by local consulting firm ValuStrat has shown that half of the freehold apartment locations monitored by the ValuStrat Price Index (VPI) have initiated a gradual price recovery. Haider Tuaima, ValuStrat research manager, said: “Even though sales transaction volumes came down in Q3, which is expected during the quieter summer months, Dubai Land Department (DLD) transacted sale prices for residential apartments have increased noticeably, at 6.6% annually and 5.2% on a quarterly basis.”
Immune to market conditions, the retail and mall subsidiary of Emaar Properties, Emaar Malls, also posted growth. It recorded a net profit of $387m (AED1.4bn) during the first nine months of 2016, an increase of 16% compared to $332m (AED1.2bn). The total revenue for the first nine months of the year was $651m (AED2.3bn), 10% higher than the revenue of $591m (AED2.17bn) achieved during the same period last year.
The company reported a net profit of $118m (AED435m) in the third quarter of 2016, which is 16% higher than the Q3 2015 net profit of $102m (AED376m). Revenues grew to $211m (AED774m) in Q3 2016, an increase of 8% over Q3 2015 revenues of $196m (AED720m).
Regionally, Saudi Arabia bore the maximum brunt, when it came after-effects of the global economic downturn and shrinking liquidity in the market. Yet one of its major real estate developers, Dar Al Arkan, posted a 21% jump in its net profit for Q3 2016. The company’s net profit rose to $30m (SAR113m) from $24.7m (SAR93m) over the same period last year. The increase in profit was mainly due to higher revenues from property sales and lower operating expenses like payroll and consultancy fees during the three-month period, said the company in a statement to the Saudi stock exchange, Tadawul.
The Saudi real estate group, however, witnessed a decline in its total revenue for the nine-month period, which fell 18.5% to $389,002 (SAR1.4m) from $477,546 (SAR1.7m) in the same period last year.
Even Kuwait-based developer, United Real Estate Company (URC), announced a net profit of $16.1m (KWD4.9m) for the first nine months of 2016, an increase of 1% from $15.8m (KWD4.8m) reported for the same period of 2015. URC’s net profit for the third quarter of 2016, ended 30 September, 2016, reached $6.2m (KWD1.9m), compared to $4m (KWD1.2m) for the same period last year, achieving a growth of 56%.
Despite the muted and subdued nature of the current real estate market in the region, the developers have maintained a positive outlook with their big-ticket announcements. It remains to be seen whether the strength of demand, and the new projects in the pipeline, will help the developers to sustain their profitable growth numbers for the remainder of the year.