UAE realtors need to focus on revenue growth to drive profitability

Abu Dhabi: The improved financial performance of the UAE's major property developers in the third quarter compared with the previous quarter is perhaps a pointer that the worst of the global financial crisis may be over for local real estate companies.

However, in order to sustain their growth momentum, analysts say individual developers must aggressively drive their revenue growth and focus on delivery.

"Sentiments in the marketplace are improving. The rate of default in many projects is also lessening," Blair Hagkull, managing director for the Middle East and North Africa for Jones Lang LaSalle, a major global property investment advisory company, told Gulf News.

"Some developers are now re-engineering their entire business model because the pre-sale model isn't working.

"This is primarily due to an absence of credit, absence of debt and absence of positive market sentiment," he added.

"The real estate companies are recovering quite well for now. But they will have to focus more on revenue growth.

"This could be done through diversifying their line of business and through an increase in recruitment of sales staff to sell their lands and properties," said Sherif Kabil, Head of Institutional Trading at Makaseb Islamic Financial Services.

Last week, the country's top real estate companies announced their third quarter results.

Abu Dhabi-based real estate developer Aldar Properties' said its net profit in the third quarter fell 43.78 per cent year on year to Dh427 million. Gross revenues fell to Dh640 million from Dh920.35 million a year earlier. However, Aldar's net profit improved markedly from its second quarter net profit of Dh253.5 million.

Markets opening up

"The revenue in the third quarter came from property sales, land sales and rent. We are starting to see markets opening up in terms of business activity, in terms of sales and leasing," said Shafqat Malek, Aldar's chief financial officer.

Aldar reported a net profit of Dh1.57 billion for the first nine months of 2009 with gross revenues of Dh1.74 billion.

Abu Dhabi-based Sorouh Real Estate earned a third-quarter net profit of Dh187.3 million, down 75 per cent from the year-ago quarter, but said it saw signs of stabilisation in the market. Sorouh made a nine-month net profit of Dh461 million.

According to the latest industry estimates, Abu Dhabi's total civil, infrastructure and real estate projects are valued at about $254 billion (Dh933.1 billion), with around $183 billion in the execution phase.

Dubai-based Emaar Properties, which will hand over the Burj Dubai, the world's tallest tower, next month said it had returned to profitability.

Emaar reported a Dh655 million net profit for the third quarter on the back of high-margin property sales, compared with a Dh1.25 billion loss in the second quarter.

However, Mohammad Amerah, an Abu Dhabi economist, struck a cautionary note, saying all is not well as far as the near term future of property developers is concerned.

"High property prices and lack of cash with investors at a time when the banks are being cautious with lending is likely to bring down the profitability of real estate companies in the quarters ahead," said Amerah.