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Mon 19 Mar 2007 03:51 PM

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Is Emaar’s land deal good for shareholders?

We've done the maths, so you don't have to.

Whether Dubai Holding taking a 27.9% stake in Emaar Properties in return for land is a good deal for private shareholders will only be discovered when the details are announced.

Before that announcement, which will be at an extraordinary general meeting (EGM) in two weeks time, speculation will be rife about how much land is involved and where in Dubai it will be.

These two questions are crucial for shareholders to decide whether it is a good deal for them. If the land in question is good value for money, shares should rise. If it is overpriced, shares should fall.

Emaar Properties has moved today (Monday) to encourage speculation to err on the side of optimism. It said in a statement issued at the Dubai Financial Market that the land will be in "a prime location in the city of Dubai".

"In the city" is probably the operative phrase. It is safe to assume this is not a chunk of desert somewhere on the other side of Mirdiff.

My assumption would be that the land will be bordering the Dubai Creek as it expands round towards Business Bay and the Burj Tower.

The area adjacent to where Al Wasl Hospital currently stands is owned by Dubai Holdings. It is currently protected as a nature reserve, but as the Creek grows inland, prime locations will be created along its banks.

The next question is, how much land comes with the deal? Reuters has done its back of envelope calculations and worked out that Emaar will receive land worth $7.6 billion from Dubai Holding.

Land values vary dramatically in Dubai. The government's Dubai Land Department web site (
http://www.dubailand.gov.ae/

) lists transactions this year. An average price for land in the Emirates Hills area of Dubai is around Dhs128 ($35) per square foot.

If Emaar Properties spent $7.6 billion on land at $35 per square foot, it would acquire 217,142,857 square feet of land.

That might seem like an awfully large number, but it actually equates to 20.2 square kilometres. Paradoxically, that might seem like rather a small number to the untrained eye.

But if you are in the property business, you will know that 20 square kilometres is a staggeringly large amount of land in a city as valuable as Dubai.

To give the layman some perspective, the Dubai Marina project is around 3km from end-to-end, and about 1km wide. That makes 3 square kilometres.

The land that Emaar is securing is around seven times as large, and I remind you is said to be in a "prime location in the city of Dubai".

If the land borders the Creek, and has permission for skyscrapers to be built on it, a price of $35 per square foot would be an incredible bargain. Likewise, if Emaar secures as much as 20 square kilometres in such a prime location, this would represent outstanding value for money.

Shareholders will ultimately judge whether they view the numbers as good or bad news, and they will be wise to spend time squinting at maps and planning permission, and picking forensically through the mathematics before they make their decisions.

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