1. FOCUS
34 Gulf Property
E
scalating property
prices and rents
helped property devel-
opers to book hefty
profits last year, bank-
ing on the hype created right
after UAE’s historic win of the
World Expo 2020 bid in No-
vember 2013. This happened
after years of struggling that
resulted in cost cutting meas-
ures such as job losses,
salary cuts and putting proj-
ects on hold since 2008-09
when the global financial cri-
sis hit the Gulf’s real estate
markets.
Emaar Properties recorded
a 30 per cent increase in its
net operating profits to
Dh3.35 billion last year, up
from Dh2.58 billion recorded
in 2013. Nakheel reported a
46 per cent jump in net profits
to Dh3.68 billion, up from
Dh2.57 billion while Deyaar
reported an 82 per cent jump
in net profits to Dh281 million
in 2014 compared to Dh154
million in 2013.
Damac Properties, which
listed its shares in London
Stock Exchange and Dubai
Financial Market in recent
months, reported a 46 per
cent increase in net profits to
Dh3.44 billion, up from
Dh2.35 billion reported in
2013.
However, the biggest
gainer in terms of jump in
profitability is Union Proper-
ties which recorded 171 per
cent increase in net profits to
Dh833 million, up from
Dh307 million reported in
2013. In terms of growth rate,
Abu Dhabi-based Aldar Prop-
erties reported the slowest
growth in profitability – just 2
per cent to Dh2.27 billion in
2014, rising marginally from
Dh2.23 billion in 2013.
However as the market
slides from the artificial hike
to a more realistic level that
the economic fundamentals
could support, outlook for this
year’s performance does not
UAE realtors cash in on
Expo 2020 hype in 2014
UAE realtors cash in on
Expo 2020 hype in 2014
Indrajit Sen
Senior Reporter

2. Gulf Property 35
Looking Back:
Growth in 2014
The real estate market expe-
rienced a rapid rate of growth
from 2012 to 2014, backed
by a number of positive fac-
tors. All sectors of the mar-
ket saw some growth in
prices and rentals during this
time, with the most rapid in-
crease in the residential sec-
tor (where average house
prices increased by 56 per
cent between mid-2012 and
mid-2014), says Plumb.
“In a market upturn, not
only are there more sales,
but the level of prices and
rentals are increasing, both
of which have had a positive
impact on the performance
of developers in Dubai,” he
says.
Experts also believe that
some residential developers
registered revenue growth
based on unit sales through
2014 as well as payments
made for units sold in 2013.
“Anecdotally, the 2014
growth is probably primarily
due to strong sales in the first
half of 2014; transaction vol-
umes seemed to slow for the
completed and off plan mar-
kets in the second half of the
year, particularly in Q4,” says
Jesse Downs, Managing Di-
rector, Phidar Advisory.
Some real estate develop-
ers concentrated on building
income-generating assets in
2014 and the revenues con-
tributed significantly towards
their net profits. Hotel apart-
ments proved to be a high-in-
come generating asset, as
the steady flow of tourists
kept occupancy rates high in
Dubai, and revenues contin-
ued to rise. Damac diversi-
fied its portfolio by raising its
hotel and serviced apartment
portfolio and it seemed to
have paid off well for the de-
veloper.
“In some cases, lower
profit margins can be miti-
gated by aligning a project
with a reputable brand to
generate premiums,” says
Harmen De Jong, Partner
Development Consultancy
and Research, Knight Frank.
“Damac is one of the devel-
opers which is known for
having done so. In this con-
text we foresee continued
demand from developers for
5-star brands in Dubai. This
primarily applies to develop-
ers of mixed-use projects
who acknowledge the value
add of a premium (hospital-
ity) brand.
For instance, residential
real estate commands higher
premiums and absorption
levels if it’s part of a mixed-
use complex anchored by a
reputable hospitality brand.
Because prospective buyers
will only see the value add if
the brand represents a desir-
able lifestyle, we expect pre-
mium hospitality brands to
remain in demand.”
Plumb agrees saying,
“Many developers have
appear that rosy, if popular
opinion is to be believed.
“This rate of growth is
clearly unsustainable and
since the middle of last year,
the markets have has seen a
welcome stabilisation – with
little or no change in either
prices or rents in the residen-
tial sector over the past six
months,” Craig Plumb, Head
of Research at Jones Lang
LaSalle, told Gulf Property in
an exclusive interaction on
the performance of the real
estate companies.
FOCUS
UAE developers’ performance 2014
Developers Revenues Net Profits
2014 2013 % 2014 2013 Change
Emaar Properties 9.89 bn 10.3 bn –4% 3.35 bn 2.56 bn 30%
Nakheel N/A N/A N/A 3.68 bn 2.57 bn 43%
Aldar Properties 6.55 bn 5.38 bn 22% 2.27 bn 2.23 bn 2%
Damac Properties 7.38 bn 4.49 bn 64% 3.44 bn 2.35 bn 46%
Deyaar Development 1.04 bn 722 m 45% 281.9 m 154.5 M 82%
Union Properties (9M) 1.73 bn 2.13 bn –19% 833.8 m 307 m 171%

3. FOCUS
36 Gulf Property
recognised the attraction of
holding securely leased in-
come producing properties,
rather than selling units to
developers. This applies to
both the residential sector,
where Nakheel have an-
nounced major new projects
for rental in the Jebel Ali
area, and also in the office
market where tenants prefer
single owned space rather
than that sold on a strata title
basis.”
We have seen multiple de-
velopers turn to the hotel/ser-
viced apartment sector. From
an individual developers per-
spective it can seem sensi-
ble because these assets
theoretically allow develop-
ers and investors to mitigate
risk by appealing to two dis-
tinct demand groups,
namely, visitors and resi-
dents. However, there are a
number of assumptions em-
bedded in this equation, ac-
cording to Downs.
The quality of a typical res-
idential building depends
largely on development ba-
sics like location, layouts,
and design implementation,
she says. Furnished apart-
ments add a completely new
layer of risk comprised of
both the quality and suitabil-
ity of furnishing. A beloved
luxury brand may market
well, but may not be suitable
for home décor or may not
suit local demand.
Adding servicing to a fur-
nished apartment adds yet
another layer of risk on a
project and expands the risk
profile from fixed assets to
operations. So the system
now has moving parts and
the risk equation includes
both static risk and dynamic
risk.
Of course, if the developer
ties up with an international
operator with a long track
record of delivering reliable
service, then the risk for in-
vestors is often mitigated.
However, this is often not the
case with developers creat-
ing new brands with little or
no track record. Of course,
there are also home grown
success stories, like the Ad-
dress brand created by
Emaar, but this brand was
created through significant
investment in human capital
and well located and well de-
sign physical assets, she be-
lieves.
Deliveries
push Nakheel
profit 43%
N
akheel recorded
a net profit of
Dh3.68 billion,
representing a 43
per cent increase
on last year’s net profit of
Dh2.57 billion on higher
sales and deliveries. The
strong financial perform-
ance in 2014, driven by
the continued delivery of
residential units and plot
sales, underpins investors’
confidence in Nakheel, the
company said.
Nakheel handed over
1,117 units to customers
in 2014. Nakheel has now
delivered 8,837 units to
customers since its re-
structuring began in 2010.
Nakheel Chairman Ali
Rashid Lootah said, “[The
year] 2014 was our
biggest year yet in terms
of financial performance
and achievements. Not
only did we clear all Dh7.9
billion of our outstanding
bank debt four years
ahead of time, we also
completed and delivered
our first new project –
Palma Residences – since
restructuring.”
Interest in Nakheel’s ex-
panding number of retail
projects swelled in 2014,
with almost 7,000 units at
Deira Islands Night Souk
and Warsan Souk pre-
leased within a week of
their launch. There was
also a large appetite for
space at Nakheel Mall and
The Pointe at Palm
Jumeirah and at various
other retail projects
launched last year. “We
will continue to build on
the success of 2014 by re-
leasing more units for
lease,” Lootah said. g

4. “This rate of growth is
clearly unsustainable
and since the middle of
last year, the markets
have has seen a
welcome stabilisation –
with little or no change
in either prices or rents
in the residential sector
over the past six
months.”
– Craig Plumb,
Head of Research,
Jones Lang LaSalle
Gulf Property 37
Perhaps more concerning
are the developers without a
substantive track record of
achieving development ba-
sics now trying to manage
these multiple layers of risk.
Time will tell whether they
will succeed, but, for now, in-
vestors should be aware of
these risks. The bottom line
is that the demand risk may
be mitigated, but the devel-
opment and operational risks
are often higher.
So can developers mitigate
their risks by expanding their
incoming-generating assets,
as well as rental portfolio?
“They could but it really de-
pends on the objectives of
these developers in general
and on their investment hori-
zons in particular. In some
cases, lower profit margins
FOCUS
Income from
hospitality,
retail powers
Emaar profit
E
maar Properties, de-
veloper of the world’s
tallest tower Burj
Khalifa, recorded a
robust year when it
shelled out Dh17.12 billion
dividends to shareholders.
However, its profits were
powered by rental income
from retail, hospitality and
shopping malls that fetched
Dh5.36 billion, or 54 per
cent of the total revenue.
At Dh5.36 billion, it is 12
per cent higher than the
Dh4.8 billion generated in
the previous year. The com-
pany’s international opera-
tions also recorded robust
growth with FY 2014 rev-
enue at Dh1.89 billion, to-
talling 19 per cent of the
total revenue. This marks a
growth of 63 per cent com-
pared to Dh1.16 billion in FY
2013.
Mohamed Alabbar, Chair-
man of Emaar Properties,
said, “[The year] 2014 was
a robust year for Emaar as
we recorded positive growth
across each of our three
core businesses – property,
shopping malls and hospi-
tality – as well as in our in-
ternational markets. We
created long-term value for
our stakeholders through
our record results, buoyed
by the upbeat performance
of Dubai’s growing econ-
omy.”
Alabbar said that Dubai is
now firmly positioned as the
centre of international trade
flow and a global hub for
business, leisure, retail,
hospitality and fashion.
“With Dubai International
clinching the honour as the
world’s busiest airport for in-
ternational passengers wel-
coming 70.4 million people
and The Dubai Mall contin-
uing to be the world’s most-
visited retail destination
recording around 80 million
visitors in 2014, the city’s
positive growth will continue
to energise our operations
across all business sectors
in the coming years,” he
said. g
can be mitigated by aligning
a project with a reputable
brand to generate premiums.
Damac is one of the develop-
ers who is known for having
done so,” De Jong says.
“A portfolio of income pro-
ducing residential real estate
has an entirely different re-
turn profile compared to a
business which is geared to-
wards building and selling
off-plan. Moreover, a devel-
oper who is skilled at building
and selling off-plan such as
Emaar and Damac will need
to institutionalise a whole dif-
ferent skillset if it wants to
focus on retaining its resi-
dential assets. Property
management and asset
management become critical
in such a case.”
The residential segment
experienced a period of rela-
tive stability during the sec-
ond half of 2014, with rental
rates remaining broadly flat.
Over the year, modest
growth of around 7 per cent
was recorded, compared
with 24 per cent during 2013,
according to global property
consulting firm CBRE’s year-
end market update. Over
20,000 new units are ex-
pected to enter the market
during the course of the next
12 months which could have
a deflationary impact on
sales and rental rates, CBRE
predicts.
“Over the past 12 months
the sales segment has com-
prehensively outperformed
the rental market, recording
an 18 per cent growth year-
on-year as compared to 30

5. FOCUS
38 Gulf Property
per cent in 2013. This dis-
connect is highlighted as a
potential area of concern for
the market, with mounting
pressures on rental yields as
a result.
However, despite the slow-
down, the market continues
to see strong occupier and
investment demand for well
located, good quality resi-
dential apartment buildings,
a fact backed up by recent
transaction numbers in the
established community loca-
tions,” said, Mat Green,
Head of Research and Con-
sultancy UAE, CBRE Middle
East.
“Over the course of the
year, the residential market
has progressively slowed
with transaction volumes well
down on 2013 performance.
Whilst values have grown
steadily during the period,
the growth is just a fraction of
the 30 per cent growth
achieved last year.
A similar story has also
been evident in the residen-
tial leasing market, wherein
rentals suffered a first quar-
terly decline since the last
downturn in 2008,” Green
further said.
However, despite the mar-
ket stabilising and sales vol-
umes declining in the final
months of 2014, annual fi-
nancial results declared by
the major players recently
show that they have
recorded strong profits for
the year, far better than
2013.
Looking Ahead:
2015 – A Year of
Challenges
As prices and rents are
under pressure, sales vol-
umes continue to fall and the
market begins to cool down,
one wonders how the prop-
erty developers will fair this
year.
Some of the developers
have already begun to take
precautions against possible
losses. Some have started to
cut down the marketing
budgets while others started
to slash workforce. Some are
mulling project delays.
However, Nakheel Chair-
man Ali Rashid Lootah allays
“A portfolio of income
producing residential
real estate has an
entirely different return
profile compared to a
business which is
geared towards
building and selling off-
plan. Moreover, a
developer who is skilled
at building and selling
off-plan such as Emaar
and Damac will need to
institutionalise a whole
different skillset if it
wants to focus on
retaining its residential
assets. Property and
asset management
become critical”
– Harmen De Jong,
Partner, Knight Frank
Jones Lang LaSalle expects
average residential prices in
Dubai to fall by up to 10 per
cent in 2015, with downward
pressure also on hotel per-
formances as the market be-
comes more competitive...

6. FOCUS
Gulf Property 39
ing the current market trend
as clear signs of a slump,
most others are confident it
is a necessary correction,
which happens in all other
mature property markets. But
how much of a challenge will
2015 be for the major
names?
“The recent decline we
have seen in residential
prices, albeit moderate, will
have a knock-on effect on
off-plan sales. There may be
scope for further negative
growth in 2015, especially
where it involves villas and
townhouses located further
inland. This doesn’t neces-
sarily mean that revenues
will decline as lower price
points may make property
purchase more attractive for
buyers. However, margins
especially where they pertain
to residential sales, are likely
to come under pressure,” De
Jong says.
But experts suggest there
are alternatives to overcome
these challenges of lower
revenues and profits. One
option is to focus on develop-
ing a small number of niche
products backed by a sales
model incorporating only a
small proportion of off-plan
sales, recommends Downs.
“Some developers already
base feasibilities on this
structure. It creates more
sustainable projects less
likely to encounter stalls or
delays due because the fi-
nancing is secured,” she
says.
the fear, saying, “We are
looking to maintain the same
pace, at least, of growth in
2015 as we saw last year.
We will continue to build on
the success of 2014 by re-
leasing more units for lease,
both on the residential and
retail side. Our aim is to
reach Dh7.5 billion in recur-
rent rental income – via a
portfolio of 10 million square
feet of retail space and
30,000 residential units –
within around three years.”
Jones Lang LaSalle ex-
pects average residential
prices in Dubai to fall by up
to 10 per cent in 2015, with
downward pressure also on
hotel performances as the
market becomes more com-
petitive. While some are call-
Akoya powers
Damac profit
P
rivate sector de-
veloper Damac
recognised rev-
enues grew by 64
per cent to Dh7.38
billion in the twelve
months to December
2014, comprising develop-
ment income attributed to
the delivery of 3,553 units
across eight projects;
alongside land sales at
flagship developments
Akoya by Damac and
Akoya Oxygen, which
generated revenues of
Dh3.2 billion, accounting
for 43 per cent of total rev-
enues. Net profit for FY
2014 increased by 46 per
cent to Dh3.44 billion, up
from Dh2.35 billion in
2013; driven by the growth
in revenues.
“The strong increase in
recognised revenues dur-
ing the year highlights the
successful delivery and
sale of land and units
across a number of proj-
ects, as well as the appeal
of our diverse product
base to customers around
the world,” Hussain
Sajwani, Executive Chair-
man and Chief Executive
Officer of Damac said.
“The launch of Akoya
Oxygen in 2014, coupled
with the ongoing develop-
ment of our extremely
popular Akoya by Damac
development, has sup-
ported and bolstered
these higher revenues.
Our growing hospitality
arm and retail offering
through The Drive at
Akoya complement this
residential focus and add
another dimension to the
exciting, modern lifestyle
we are trying to create for
our customers,” he further
said. g

7. FOCUS
40 Gulf Property
“Investors should be aware
of this issue and the risks of
buying into a project where
the financing is highly de-
pendent on off-plan sales.
The market definitely needs
new supply, but primarily in
specific income brackets.
Less reliance of off-plan
sales, reduces the noise
from speculation and allows
banks and private investors
to play a more prominent role
in vetting new projects,” she
further explains.
Plumb is however opti-
mistic of the current market
slowdown and predicts that
these ‘more stable market
conditions’ will prevail for the
next 1 to 2 years.
“This is regarded as a wel-
come sign of market maturity
and should help Dubai retain
its position as a competitive
city in which to live and
work,” he believes.
Call it stabilisation or slow-
down, there are others who
believe that this period is
going to continue for a while
longer, till 2018 at least.
Downs feels that any market
rebound will depend on a
‘confluence of exogenous
and endogenous factors’.
She explains, “While the
US dollar remains strong,
demand for Dubai real estate
is likely to remain tempered
and yields should continue to
guide market trends. As sup-
ply expands, rents are ex-
pected to soften. Since
there’s also upward pressure
RAK Properties
profits touch
Dh155.74 m on
asset value
R
AK Properties
PJSC achieved
net profits of
Dh155.74 million
in 2014, which
demonstrates the com-
pany’s strong perform-
ance, particularly across
the last quarter of the pre-
vious year that led to
reaching revenues worth
Dh297.82 million. How-
ever, the company did not
reveal the comparative
profit growth rate.
Mohammed Sultan Al
Qadi, Managing Director
and CEO, RAK Proper-
ties, stated that the strong
performance recorded in
2014 reflects positively on
the current value of its as-
sets, estimated to be
worth Dh4.7 billion.
“[The year] 2014 has
seen an impressive
growth in our business
portfolio, in conjunction
with the allocation of a
budget of Dh1 billion to
develop and expand the
Mina Al Arab development
project and the completion
of new facilities that in-
clude an environmental
hotel and a set of residen-
tial villas as part of proj-
ects that are being
implemented during the
current year,” Qadi said.
“The results of Q4 2014
also reflect the increased
level of investments being
made in Ras Al Khaimah
as it continues to attract
regional and international
investors to take advan-
tage of its many potential
opportunities,” he further
said. g
While some are calling the current
market trend as clear signs of a
slump, most others are confident it is
a necessary correction, which hap-
pens in all other mature property mar-
kets. But how much of a challenge
will 2015 be for the major names?

8. FOCUS
Gulf Property 41
to hit Dubai’s economy, so, if
oil prices stay low, then
Dubai’s economic growth
could potentially slump in
late 2016 and 2017, until the
additional boost of Expo job
growth starts in 2018.
It difficult to accurately pre-
dict all elements that poten-
tially influence the market,
expect the slump to continue
through 2015. Thereafter,
we’ll probably experience
some volatility until the mar-
ket stabilises in 2018,” she
predicts.
However, despite the odds,
some developers are going
ahead with their projects.
Wasl and Danube have re-
cently held sales meetings
where two freehold projects
have been sold out at launch
in December 2014 and Jan-
uary 2015 – within a gap of
just a few weeks. This also
proves that if developers re-
main committed to delivering
quality, there won’t be any
shortage of buyers. g
on yield, property prices
should decrease at a faster
rate than rents. This is all as-
suming property and facilities
management fees remain
constant.
An increase in those fees
will amplify sale price down-
side risk. Since the US dollar
and therefore dirham are ex-
pected to remain strong in
the near term, then this trend
will continue.”
“In two to three years, the
price of oil has the potential
DSI reports
modest profit
E
ven construction
companies regis-
tered good profit
margins, as they
bagged multiple con-
tracts from real estate de-
velopers in Dubai. Drake &
Scull International PJSC
(DSI) reported a net profit of
Dh110 million in 2014, while
their revenues rose to
Dh4.83 billion.
Revenues recorded for
the fiscal year were flat
compared to last year and
were primarily generated by
the Saudi Arabia and UAE
markets, each contributing
43 per cent and 26 per cent
respectively. The general
contracting and engineering
businesses generated 40
per cent and 51 per cent of
the cumulative revenues
achieved in fiscal 2014.
Profitability for the fiscal
year was impacted by the
delays in the KSA market in
the General Contracting
sector and the UAE receiv-
ables provisions which af-
fected the overall operating
and net margins of the
group. The Oil & Gas busi-
ness delivered solid mar-
gins and consistent results
throughout the fiscal year
contributing 50 per cent of
the consolidate bottom line
in 2014.
DSI managed to win
Dh5.34 billion worth of new
projects in 2014. The UAE
market and particularly
Dubai witnessed acceler-
ated growth for DSI as total
project awards in its home
market reached Dh1.4 bil-
lion in fiscal 2014.
The order backlog
reached a record high of
Dh14.4 billion representing
a year on year increase of
20 per cent. KSA and the
UAE markets remain the
largest contributors to the
backlog accounting for 34
per cent and 18 per cent re-
spectively as of December
31, 2014.
Commenting on the re-
sults Khaldoun Tabari, CEO
of DSI said, “The economic
scenario in our region un-
derwent a rapid change in
the last few months which
has had an impact on the
regional construction indus-
try.”
“A cautious sentiment in
the real estate sector has
led developers to become
more price conscious,
which has lengthened the
project development cycle
in all our key markets. This
has resulted in delays in our
collections which created a
slowdown in our revenue
generation. The impact of
this also affected our prof-
itability margins,” he further
said. g
“In two to three years,
the price of oil has the
potential to hit Dubai’s
economy, so, if oil
prices stay low, then
Dubai’s economic
growth could
potentially slump in late
2016 and 2017, until the
additional boost of
Expo job growth starts
in 2018. It difficult to
accurately predict all
elements that
potentially influence the
market, expect the
slump to continue
through 2015.
Thereafter, we’ll
probably experience
some volatility until the
market stabilises in
2018.”
– Jesse Downs,
Managing Director,
Phidar Advisory