New Aldar Properties accounting method allows off-plan sales to appear earlier in results

Revenue from off-plan sales was only recognised once a completed unit was delivered to a customer, who then provided payment in return for the title.

The Aldar HQ building in Abu Dhabi. Delores Johnson / The National

Aldar Properties says it is adopting a new accounting system that will allow it to book revenues from the sales of off-plan developments at an earlier stage.

It has adopted IFRS 15, the newest set of reporting standards introduced by the International Accounting Standards Board (IASB).

IFRS 15 allows developers to recognise partial revenues and profits from the sale of off-plan properties when contractual targets are achieved.

Under the previous accounting standards, revenues and profits from a property sale can only be booked when the transfer of substantial risks and benefits – the handover of the property, that is – to the buyer has taken place.

Under IFRS 15, however, Aldar can stagger the revenue recognition from the sale of an off-plan unit over a longer period of time, based on when it completes agreed milestones.

For instance, if a contract stipulates that the buyer will pay 10 per cent of the purchase price when a building’s foundations are in place, then it can declare this portion of revenue once the work is done.

The adoption of IFRS 15 by January 2017 is compulsory, according to an Aldar spokesman. “However, we have the opportunity to early adopt and believe we are ready to do so now,” he said.

Being able to book off-plan sales of properties during the course of their completion would “better reflect the financial performance of the group to the underlying activities”, said the spokesman.

“The result is that revenue recognition under IFRS 15 is smoothed out over the construction period.”

Sanyalaksna Manibhandu, the head of equities research at NBAD Securities, described the move as “positive news for ­Aldar”.

Under the current system, “developers have lean years and fat years” depending on their position in the property cycle, he said.

For instance, Aldar launched three projects worth US$1.36 billion last year, and under the previous accounting regime it would have to pay for the building costs of all the projects before booking sales and profits only when they are handed to the buyers in 2017.

“This is not a free-for-all and you have to refer back to the contract,” said Mr Manibhandu. “But depending on what you deliver and what you agree with your counter-party, you can declare some of the revenues before completion.”

Last week, Aldar said it had generated sales of Dh1.9bn for new projects in the first half of the year.

The developer, which has assets exceeding $10bn, said it began looking at the new accounting standards last November, but it is not the first UAE developer to adopt them.

Emaar Properties used IFRS 15 when announcing its first-quarter results in May.

Other developers such as Deyaar Development, Union Properties and Damac Properties have yet to adopt the new rules.

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