Emaar Islamic bonds to extend rally on UAE visa rule

Emaar Properties’s sukuk may extend their rally after the UAE relaxed visa rules for homebuyers to attract investment to the Middle East’s worst-performing property market, said Mashreq Capital DIFC Ltd and EFG-Hermes Holding SAE.

The yield on the 8.5 percent Islamic notes due August 2016 slid 18 basis points, or 0.18 percentage point, to 7.14 percent on Thursday since the government passed a resolution on June 28 extending the visa period. The rate on the bonds from the Dubai- based developer of the world’s tallest tower, the Burj Khalifa, may decline as much 70 basis points, according to Mashreq Capital.

The federal government agreed to lengthen the visa period to three years from six months to “enhance the attractiveness of the real estate sector.” Property prices in Dubai, the second largest of the seven sheikhdoms in the UAE, have dropped 64 percent from their peak in mid-2008, Deutsche Bank AG said in a June 9 note to investors. In neighbouring Abu Dhabi, prices fell 55 percent, according to Dubai-based Rasmala Investment Bank Ltd.

“The announcement is potentially positive for the real estate sector in Dubai, and Emaar is a major player in that sector,” Abdul Kadir Hussain, chief executive officer at Mashreq Capital in Dubai, who helps oversee $2bn in fixed- income assets, said in an interview July 5. “The sukuk will probably tighten.”

About 85 percent of the UAE’s population are foreign nationals and require visas to live and work in the country. Emaar, 31 percent owned by the Dubai government, is the nation’s biggest developer by market value.

The UAE’s visa extension plan will “significantly enhance investor confidence and drive the growth of the country’s property sector,” Emaar chairman Mohammed Alabbar said in a statement e-mailed on June 29. The government shortened the period to six months from five years in May 2009, sparking criticism from homebuyers and investors.

The Dubai Financial Market Real Estate Index, a measure that includes the shares of five developers, rallied 3.5 percent since June 28. Abu Dhabi’s ADX Real Estate Index, which tracks three real-estate companies, increased 5 percent in the same period.

The Dubai government’s 2002 decision to allow foreigners to own homes helped make the emirate the world’s fastest-growing real-estate market until its collapse in 2008. Former England team captain David Beckham, former Formula 1 driver Ralf Schumacher and singer Rod Stewart boosted the sheikhdom’s profile when they became owners of villas on palm-shaped islands off its coast.

Dubai government’s 6.396 percent Islamic bonds maturing November 2014 yielded 4.73 percent today, down 24 basis points since June 28. The yield on state-controlled ports operator DP World Ltd’s 6.25 percent sukuk due July 2017 declined 24 basis points to 5.52 percent today, the data show. Emaar’s bonds yielded 161 basis points more than DP World.

Emaar’s “sukuk is still one of the cheaper securities in the entire Dubai complex, so it still offers a relatively decent yield compared to everything,” Mashreq’s Hussain said.