Dubai developer books AED1.2bn as impairment provisions on value of property in Q3
Union Properties' third-quarter net loss more than doubled as the struggling developer booked additional provisions amid a sharper drop in the valuation of its properties.
The Dubai-based firm posted third-quarter loss of AED1.06bn ($288.6m) compared with a loss of AED451.8m made reported during the same period in 2010. It booked AED1.17bn as impairment provisions on the valuation of its properties in the quarter.
EFG-Hermes estimated that the company would make a profit of AED37.26m.
Third-quarter revenues stood at AED955m, up from AED545.2m one year earlier.
Real estate firms in Dubai were hit hard by the global financial crisis in 2008 with property prices dropping by about 60 percent from its peak.
The company said it has obtained a AED2.75bn loan facility from a consortium of banks, including one of its largest shareholders, to complete ongoing projects. As a result, Union Properties expects to meet its financial commitments going forward.
Union Properties had said in June that it would repay AED2bn of debt this year and will renegotiate terms for its other loans for banks.
The company's shares are down 16 percent year-to-date.
This set of results is probably the most accurate barometer of conditions in the Dubai property market as you are likely to find and an indication that any semblance of recovery is a number of years away.
It also shows that low single digit price increases reported, when they occur are not the best of indicators. Bear in mind that a property that has lost in excess of 60% of its book value based on an inflated 2008 peak benchmark is already starting at a massively inferior cost base. Therefore a 3% rise on say 38% of a unit's 2008 top valuation is miniscule.
However, another fall of 30%, as some analysts have forecast, on an asset that currently stands at 38% of its 2008 peak value only brings it down to 26.6% of the asking price in 2008, but does take the loss on a property bought in mid-2008 up to 73.4%. There are more impairments to be taken for sure.
I would not put too much stock in Union Properties as a benchmark for the market. I have lived at Uptown Mirdif for 4 years and seen the decline as UP has not kept up with routine maintenance. Our pool is now ice-cold because the thermostat is broken, pots are cracked around the pool, the landscaping is looking bad, etc. There have been leaks of some kind of liquid in the basement for years and they have never been 100% repaired. Even the retail environment is far different than 2 years ago. It is becoming a slum with more than 50% of the retail spaces empty. As long as Spinney's, Fitness First and Caribou Coffee don't leave at leave we have a few retailers left that we like but odds are we are gone when our contract is up in mid 2012.
You are describing what is going to happen in most places around Duvai. All these developers have just kept collecting money and providing no services. The market will continue to collapse at a higher speed from here. The reasons: no legal frame work to protect investors, rogue developers bullying investors and RERA inability to walk the talk.
It appears to me EFG-Hermes analyst are completely disconnected with their industry...doesn't say much about their research and investment banking capabilities. Let's stick a finger in the air and depending on which way the wind is blowing we will come up with a figure!!!