Property developers in the UAE have started to break away from the downward trend they experienced in 2009, with companies that have completed projects and established revenue streams performing better than those with limited income.

Dubai’s Emaar Properties, Union Properties (UP), as well as Abu Dhabi’s Sorouh Real Estate all recorded strong first quarter results. Most notably, Emaar announced a 221 per cent year-on-year increase in profits to AED760m ($207m) and revenues of AED2.89bn.

Similarly, UP reported a 66 per cent annualised profit growth to AED50m and a 48 per cent increase in revenues to AED846m, and Sorouh posted a healthy AED131.6m profit and a 28 per cent annual increase in revenues to AED430.7m.

Egyptian investment bank EFG-Hermes has selected Emaar as its best buy in terms of UAE property stocks in 2010 based on its “increasingly well-diversified geographic portfolio, large land bank, greater recurring income and a relatively strong balance sheet”.  

However, on 27 April this year, international ratings agency Moody’s assigned a probability of default rating of B1 to Emaar, citing concerns over the sale of unsold units in Dubai and in international markets, the cash collection of presold property and refinancing risks.

“With respect to cash collections on presold units, customers have already paid up 70-75 per cent,” says Sana Kapadia, vice-president of equity research at the Dubai office of EFG-Hermes. . “The only concern is that they may end up with a receivable, so it could take time to collect the payment, but it will still come through.” 

Companies with weakening revenues performed badly. Abu Dhabi developer Aldar Properties and Dubai’s second-largest property developer by market value, Deyaar, recorded disappointing results.

Aldar posted its second consecutive quarterly loss of AED314.2m and a 54 per cent decline in revenue to AED227m, due to lack of property sales and limited deliveries.

“We have concerns regarding Aldar because it’s the most over leveraged player and there is also the additional debt overhang of Yas Island receivables, with the market waiting for some news on how that’s going to be paid,” says Kapadia.

Deyaar announced a first quarter loss of AED100m as a result of high provisioning levels and revenue of AED196m. In February, it postponed a AED500m distressed property fund it had launched in summer last year due to the prevailing difficult market conditions.

Going forward, analysts expect continued challenging market conditions for developers in the UAE. EFG-Hermes has forecast that the residential and office space oversupply in Dubai will lead to an overall 5-10 per cent decline in prices and a 10-15 per cent decline in rents during 2010.

It forecasts around 8,000 units to be delivered in Abu Dhabi in 2010 versus a demand of roughly 20,000 units and a 5-10 per cent rental decline overall for the year.