Tough time ahead for Dubai developer Damac as profit falls

Damac warned that it was facing a “challenging competitive environment” after the Dubai developer posted an 8 per cent drop in fourth-quarter profit.

In its full-year results for 2015, Damac said that market conditions in Dubai had cooled significantly since the previous year as profit for the three months to the end of December fell to Dh842.8 million from Dh916.3m a year earlier.

Damac said that it had booked nearly Dh500m in penalties from customers who in the years since the global financial crisis had walked away from their off-plan home purchases – a more than 20-fold increase on a year earlier. Hussain Sajwani, Damac’s chairman, told investors that tough conditions create opportunities for developers.

“The Dubai real estate market is at a consolidation point in the cycle and the rapid growth witnessed in 2012-2014 is now behind us,” Mr Sajwani said. “However, this market creates opportunities for well-capitalised and experienced companies like ourselves with a strong track record.”

Damac said that the results included a provision in the 2014 figures of Dh155.6m and that underlying profit was actually up 10 per cent. Revenue for the quarter increased 6.2 per cent to Dh1.7 billion from Dh1.6bn the previous year, Damac reported yesterday.

The company reported that its profits had been boosted by income it booked from cancelled sales, which rose to Dh480m, up from Dh22m the previous year. Damac said that the cancellations related to customer advances that had been retained after the global financial crisis and that were only now being shown on its balance sheet.

Damac, like other developers in Dubai, has been hit by falling oil prices and a strengthening of the dirham, which have led to a property slowdown in its home city where 92 per cent of its developments are located.

The company reported that the value of the homes it had sold to investors during the fourth quarter of last year fell to Dh2bn, down from Dh2.7bn a year earlier.

“The way we look at the oil price is that, yes, it’s a challenge but it’s also an opportunity at the same time,” said Hazem Abdallah, the vice president for investor relations.

“For every guy who feels a little bit poorer because of the oil price there’s a guy who feels a little bit richer.”

Annual profit at Damac increased by 40.6 per cent to Dh4.5bn from Dh3.2bn a year earlier, while revenue for the full year more than doubled to Dh8.5bn from Dh3.7bn a year earlier. One of its most high-profile Dubai developments is built around a golf course designed by Donald Trump’s Trump Organisation. Damac said that it had seen “no noticeable effect” on sales after the US presidential candidate went on an anti-Muslim tirade.

Damac shares fell by 4.2 per cent in Dubai trading yesterday to close at Dh2.49.

“On the face of it these figures look very good but if you dig a little deeper it becomes clear that Damac, like other housebuilders, is started to be affected by the slowdown,” said Tariq Qaqish, the deputy head of asset management at Al Mal Capital.

“The economy of the UAE is built on oil revenue and in Dubai, real estate is a massive contributor to GDP. Damac will definitely be affected by these issues, probably even more so in 2016 than last year.”

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