JEDDAH - Earnings of real estate companies in the Gulf Cooperation Council (GCC) countries will drop by 20 percent in fiscal year 2009, Kuwait Financial Centre (Markaz) said on Wednesday.
In its recent study, Markaz assessed the future course based on the past trends in their earnings.
M.R. Raghu and Venkateshwaran Ramadoss, authors of the report, noted that the earnings of real estate companies in GCC is likely to contract by 20 percent in fiscal year 2009.
They said that while earnings contracted by 42 percent in 2008 compared to 2007, the market value has contracted by 44 percent from Q1-08 to date and points to the similarity of the corporate earnings structure to the US market in terms of the share of financial companies in the total earnings during the build up to the recession in first half of 2007 when financial services accounted for 45 percent of the total corporate earnings.
Earnings of these companies, which contracted by 31 percent Y-o-Y in fiscal year 2008, fared better than the overall earnings (-42 percent) while market value of the said companies contracted by 59 percent from first quarter of 2008 till date, more than the overall fall of 44 percent.
The report noted that the contraction in both earnings and market value bottomed in fourth quarter 2008 and is in the stable territories now.
The report added that the earnings of Kuwait companies was at a negative $842 million during fourth quarter 2008, the quarter of peak negative earnings and it fared worse than the companies in Dubai which stood at a negative $671 million.
The Kuwait companies were the only ones to post a loss for the year 2008. Real estate companies in Kuwait are predominantly investment companies which had exposure to other GCC countries and hence had an earnings trend which resembles the contraction in property values across the region.
In market value terms, the contraction experienced by Abu Dhabi companies to the extent of 72 percent in first quarter 2008 levels, stands more close to Dubai companies which suffered a 80 percent contraction while the earnings of Abu Dhabi companies were comparable to Qatar RE companies which contracted only by 49 percent during the same period. This was mainly due to the financing woes which are slowly disappearing now and hence, the report suggests a faster recovery for these companies because of better sector fundamentals. Market value has recovered in first quarter 2009 compared to fourth quarter 2008 and Qatar leads the recovery followed by Abu Dhabi and Kuwait.
The report said Emaar Properties alone accounted for some 20 percent of the total market value erosion of GCC companies and five companies accounted for nearly 50 percent of the total market value erosions.
The companies for which an earnings estimate are available represent 92 percent of the total earnings in fiscal year 2008 and 49 percent of the current market cap of all real estate companies in the region even though it is limited to 9 of the total 60 real estate companies in the region.
The report said the trends in earnings of these companies to be a perfect sample of the market. These companies represent, 100 percent of companies listed in Dubai, 93 percent of Abu Dhabi, 62 percent of Qatar, 58 percent of Bahrain, 32 percent of Saudi Arabia and 0 percent for Kuwait.