Is the Emaar share price jump justified?

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Yesterday shares in Dubai’s leading property development company Emaar enjoyed a sudden up tick. It was unclear whether this represented a belated appreciation of what the now largely discredited economic green shoots of global recovery might mean for Emaar, or something to do with higher oil prices.

But it certainly had nothing to do with the condition of the Dubai real estate market where conditions remain grim with relatively few transactions, and only at distressed price levels. Analysts note that Emaar has adequate cash and significant capacity for further borrowing, and that the company has not dipped into the proceeds of the Dubai Government bond.

Law No.9

However, that is always qualified by a statement about the unknown future of off-plan property defaults. Now the new Law No.9 has gone some way to secure developers against a sudden mass exit but whatever the legislation if buyers do not have the money there is going to be a problem.

It could be that investors in Emaar are reasoning, probably correctly, that the largest and best established – and to be frank best managed – property group will cope best under these circumstances. Indeed, in the long run Emaar might emerge a winner from a shake-out, with the ability to takeover the failed projects of other developers and create a new low-cost portfolio.

Realty reality grim

However, that is perhaps running too far ahead of the reality facing Dubai real estate of a continued flow of new supply on to a falling market. How many expatriates actually depart this summer is open to conjecture but that a large number are leaving seems sure. Who then will occupy the new towers and villas?

The international property situation – where Emaar has a large exposure in the US and India – is also far from encouraging, even if most of this expensive expansion has now been largely written off.

All the same, you are never going to pick up a bargain stock when times are good and everything in the garden is blooming. Emaar will complete the world’s tallest building in September, and some say its rental income alone supports a higher share price. If only then its development and land exposure was not so large. But bring on global inflation and Emaar will be just fine.