Saturday, January 31, 2009

Major property developers in Abu Dhabi reports decline in profits

Abu Dhabi property market, which so far was able to cope with the pressure of global slowdown, is slowly beginning to feel the heat, with its two major property developers, the Aldar Properties and Sorouh Real Estate, witnessing considerable decrease in profit during the fourth quarter of 2008.

This fact emphasizes that the impact of global credit crisis has been felt on the capital's real estate sector too. Although Dubai has been seeing several layoffs and delays ever-since the end of summer, Abu Dhabi has remained immune to the turmoil. Now, with sales almost coming to a standstill, the prices of properties too are declining, and developers are reconsidering their plans and focusing on construction.

An analyst at EFG-Hermes, Sana Kapadia, said that both Aldar and Sorouh feels are the most important thing is to have the resources to implement in today's environment. So even if they don’t make much sales this year, they will continue to gain revenues as they begin delivering units.

Sorouh is the second largest property developer in Abu Dhabi. The quarterly profits of Sorouh fell 94 percent during the final quarter of 2008. The announcement follows, the report of fourth-quarter profits by Aldar, the largest developer in Abu Dhabi, whose, profits had dropped 89 percent, after focusing to stay away from selling.

Both companies had reported major increase in profit due to record sales during the first three quarters, but, executives in the companies felt that this year would be more challenging, as they were making necessary preparations to complete the projects.

Sorouh has strengthened its cash reserves, so as to guarantee its ability to complete the announced projects. About Dh.6.8bn of cash reserves in the company have been earmarked for construction and infrastructure of projects.

Sorouh is renowned for its major projects such as the Shams Abu Dhabi development on Reem Island, which is one of the tallest structures in the emirate and Lulu Island, is another major project. Sorouh is also focusing on construction of affordable housing for middle-income sector, hoped to meet high demand this year.

Aldar too revealed that its income in the fourth quarter of last year, remained low, as it had stopped sales operations during that part of the year, due to a changed market. The company is also re-considering few aspects of its construction projects.

A UK-joint venture company, Aldar Laing O'Rourke, has laid off 320 skilled employees to "re-align" the company based on changing economic environment. Aldar also recently said that it plans to increase its rental holdings to guarantee its income during the coming months.

An analyst at Shuaa Capital, has said that the companies will continue to suffer from the decrease in sales and property prices and increasing financing costs this year, but, the sector as a whole, will still be stronger, when compared to Dubai. Unlike in Dubai, Abu Dhabi will not see a decline in population owing to financial crisis, and the housing sector here is basically still undersupplied.

The analyst predicts that although the market conditions are tough right now, and this would continue to be so during the next two quarters, an improvement could be expected towards end of the year, with the marketing present more opportunities for Sorouh and Aldar.


WebJunky said...

if we study the reasons behind the decline it is apparent that this is not because of an adverse practice caused by abu dhabi. these are effects of the global recession and not so much AD's own mistakes, unlike dubai who brought a large portion of its problems onto it on its own.

Anonymous said...

1hereIs it true one cannot report bad news in Dubai for fear of a whoppping fine?