S&P upgrades Emaar Properties on strong performance of Dubai housing market

The largest developer in the emirate is expected to sustain its strong market and cash position, as well as capture the bulk of renewed interest from international buyers

Emaar Properties' Address Boulevard in downtown Dubai. The developer's large landbank 'further enhances its competitive position", S&P Global Ratings said. Antonie Robertson / The National

S&P Global Ratings has upgraded Emaar Properties' long-term issuer credit rating based on expectations of a more robust business performance amid the strength of Dubai's property market.

The upgrade to "BBB" from "BBB-", with a stable outlook, reflects the attractiveness of projects from Dubai's biggest listed developer, benefitting from positive property trends in the emirate, the ratings agency said in a statement.

The outlook mirrors S&P's projection that Emaar will continue to demonstrate steady operating performance and low leverage while being able to sustain its strong market position and capture the bulk of renewed interest from international buyers, it said.

S&P also noted that Dubai's business-friendly environment, market dynamics and reputation as a safe haven in the Middle East will also play key roles in supporting its business.

"Dubai remains an attractive business and residential destination, given that it offers low taxation despite the introduction of a 9 per cent corporate tax starting June 2023," S&P said.

"The stable outlook reflects our expectation that the company will sustain strong credit metrics in 2023-2024 on the back of the market rebound and debt reduction efforts completed pre-pandemic in 2019, which we expect to continue as we expect to see healthy demand."

Dubai's property market has continued its recovery from the Covid-19 pandemic, boosted by renewed interest from investors and buyers.

The industry had a record-breaking year in 2022, registering 90,881 transactions, exceeding the previous high of 81,182 in 2009, property consultancy CBRE said in its recent Dubai Residential Market Snapshot report.

Dubai's property market also registered strong growth in the first quarter, with total transaction value up 80 per cent annually to Dh157 billion ($42.8 billion) in the first quarter of 2023, according to official data. Total transactions rose 49 per cent to 38,715 during the three-month period.

"Off-plan properties accounted for roughly half of all deals, and prices continued to increase at double-digit rates, benefitting all developers who have been actively launching new projects," S&P said.

Emaar — the developer of the world's tallest building, the Burj Khalifa — reported in May that its first-quarter profit had surged 43 per cent to Dh3.2 billion, with revenue reaching Dh6.3 billion, boosted by strong property sales and operations across its units.

The company's property sales backlog hit Dh55.7 billion, which it said will be recognised as revenue in the coming years — a positive sign that the company will be able to improve future revenue, S&P said.

S&P noted the strength of Emaar's portfolios locally and overseas, which have helped the company's bottom line and complemented its UAE base.

"We estimate that Emaar Properties generated about 53 per cent of its gross profit from real estate development, both in the UAE and internationally, mainly in Egypt, India, Turkey and Pakistan."

And with developers having moved to full cash collection during construction phases and on handover for recent projects, this allows developers to de-risk the construction much faster and also alleviates working capital pressure, reducing funding requirements, S&P said.

"With close to Dh29 billion in CFO [cash flow from operating activities] generated in 2021-2022 cumulatively, Emaar by far outpaced its historic cash flow generation, with only Dh5.1 billion CFO in four years over 2017-2020," S&P said.

"This illustrates the strong pre-sale momentum, with the company collecting massive down payments, [and] also accelerating collections on new projects."

Compared with other private developers in Dubai, Emaar benefits from a large landbank, "which further enhances its competitive position and reduces future cash flow requirements in potentially more challenging market conditions", S&P said.

Government data shows Dubai's economy expanded 4.6 per cent on an annual basis in the first nine months of 2022. S&P estimates that the emirate's GDP rose by 4.4 per cent for the entirety of last year, compared with 3.6 per cent globally.

S&P projects 3 per cent GDP growth for 2023, backed by "continued strong momentum" in key sectors including hospitality, real estate, trade and financial services.

Business activity in Dubai's non-oil private sector economy continued to improve at a “robust pace” in May, boosted by stronger output and employment.

The emirate's seasonally adjusted S&P Global purchasing managers' index reading softened slightly to 55.3 in May, remaining well above the neutral 50 mark that separates expansion from contraction, S&P reported earlier this month.