Details

Despite market challenges, economic, financial volatility

 

Real estate firms witness noticeable improvement in operating performance

 

Waning rental revenues, rising operating, financing expenses key drivers of profit plunge

Real estate companies operating in the Gulf region have proven an enviable ability to deal with the direct and indirect developments and challenges triggered by the market conditions and financial and economic fluctuations witnessed at various local, regional and international levels over the recent years.

Such multi-faceted challenges have driven property companies towards developing innovative mechanisms and tools, including M&A partnerships in addition to adopting conservative fiscal policies in terms of cost optimisation and maximising the returns of key operating activities.

Despite the diversity of challenges, the Gulf real estate sector has shown good levels of cohesion and stability. Those operating in the sector have accumulated more experience to deal with a variety of challenges and opportunities to keep afloat by continuing to launch real estate projects of various types and targets.

The weekly real estate report issued by Al Mazaya Holding Company pointed out that the sharp fluctuations recorded on the forces of supply and demand, financial challenges and difficulties in obtaining adequate financing in addition to the price declines recorded by the markets and severe competition are all key factors that directly affect the movement of investments to and from the real estate sector. The recent years witnessed growing competitiveness in real estate markets, which have had a significant impact on investment liquidity in the financial, trade and investment sectors, particularly the real estate platform, prompting real estate companies to develop new and innovative  mechanisms and engage in partnerships that will reduce costs and increase operating efficiency to ensure competitiveness and survival.

Al Mazaya report said that forecasts indicate the stability of companies operating in the UAE real estate market in general during the coming period, thanks to the high occupancy rates recorded in most of the real estate activities, with these companies benefiting from the recent decisions to raise ownership rates which represented a direct incentive for construction activities.

A number of leading real estate companies in the UAE have achieved positive performance results exceeding AED16 billion by the end of 2018, with a growth rate of 28% compared to the previous year. The performance results for the first quarter of this year were positive and ensured business gains despite the decline in profits by 19% compared to the same period in 2018.

The improved performance is attributable to a number of companies making profits from the increase in sales and real estate transactions, while the decline in profit margins compared to previous levels results from rising revenue costs and higher selling and marketing expenses.

Al Mazaya report pointed out that the rapid shifts recorded by the Saudi economy have reflected positively on many vital sectors, with the real estate sector requiring more time to get out of the state of volatility and decline in real estate prices and profits of listed and unlisted companies. It is noteworthy here that the performance of real estate companies during the first quarter of this year slowed down, particularly major real estate companies, with the profits of nine of them falling by 51%.

Al Mazaya noted that the decline in the  operating profits of real estate companies by up to 30% during the first quarter of this year is a great challenge that reflects the pressures faced by these companies despite the diversity of investment opportunities and the continued pace of projects.

In the meantime, the operating performance of listed real estate companies improved significantly during the first half of this year compared to the same period of 2018, a fact verified by the growing profits reported by four of the seven companies that have announced their financial results so far.

It is noteworthy that the decrease in rental income, and sales of residential and industrial properties, as well as the growth in operating and financing expenses,  are the main factors that create pressures on operating profits. In the meantime, the growing revenues of residential sales and administrative expenses reflect the magnitude of opportunities available in the real estate market as a whole.

The Al Mazaya report sees many opportunities up for grab in the region, with the economic sectors becoming more efficient in benefiting from relevant government projects and decisions.

The performance of unlisted real estate companies is steadily improving despite the extreme volatility faced by the regional markets and major economic sectors.