All eyes were very much on the second-quarter results from property giant Emaar Properties as a means of forecasting the short to medium term direction of the Dubai property sector. The company certainly did not disappoint announcing net second-quarter profits of AED675 million which was significantly higher than expectations and the AED614 million announced for the same period last year. So what is pushing profits ahead at Dubai property giant Emaar Properties?
When you bear in mind that second-quarter profits from Emaar Properties were expected in the region of AED563 million it has certainly convincingly beaten this figure. The company confirmed that the unexpected increase in profitability was as a direct consequence of higher property sales in Dubai. Emaar Properties also confirmed that revenue for the second quarter was up 48% at AED3.1 billion compared to the second quarter of 2012.
If we get down to the bare bones of the situation it reads like a dream for the property sector with first half sales totalling an astonishing AED6.3 billion which equates to 4 times that for the same period in 2012. The company handed over nearly 37,000 units, nearly 21,000 apartments and 15,700 villas.
Short-term performance of the Dubai property market
One figure stands out from the crowd that being the 30% increase in residential rent values over the last 12 months. This has prompted a number of property experts to be cautious on the Dubai property market in the short to medium term amid concerns that property values are not reflective of the massive increase in rental values. Whether or not the residential sector is beginning to overheat is a matter for debate although we can only hope that the authorities and investors learned their lesson from the 2008/9 collapse which left Dubai in a sorry financial state.
Quote from PropertyForum.com : “At the turn of the century it was Dubai which became the focal point for international investment pushing the economy and the property sector to record highs. Initially, in the aftermath of the US mortgage crisis, the Dubai economy continued to push ahead and investment in property showed no signs of slacking.”
Perhaps a further indication of overheating in the residential market is the fact that Emaar Properties has increased its exposure to non-residential properties in the shape of shopping malls, leisure and hospitality assets. These particular sectors now speak for 45% of the company’s total revenue which is a significant turnaround from the more traditional residential property focus.
Should we be concerned about the Dubai property sector?
There is no doubt that property investors are making serious money in the Dubai property market at this moment in time. However, the cautious approach taken by Emaar Properties in increasing its non-residential property exposure is hopefully something which other investors will also take on board.
Dubai is an area of the world which continues to attract major international investment and while many investors had their fingers burnt during the 2008/9 collapse the market today seems to be built on firmer foundations. All eyes will be on the Dubai property market for the rest of 2013 and if we see anywhere near the same kind of rental growth as we have experienced over the last 12 months then alarm bells will begin to ring.
The Dubai property market seems to be in favour again today although we can only hope that property investors have learned their lesson from years gone by. The 30% increase in rental values is concerning but perhaps we should also take note of the fact that one of Dubai’s largest property investors, in the shape of Emaar Properties, is already in the process of reducing its exposure to the residential market.
We should also expect the Dubai authorities to take a more hands-on approach to managing the property market especially when you bear in mind the flight of investors after the 2008/9 collapse. Hopefully we are not seeing a replay of the infamous Dubai collapse but sometimes investors have very short memories and are still willing to chase the last buck.