HSBC Bank Devalues Emaar Properties in Dubai

HSBC Plc slashed its price estimate for property giant Emaar Properties to Dh8.5 from Dh13.9 amid plummeting real estate prices and the first rash of foreclosures in Dubai.

"The estimates cut will reflect the likelihood of further market weakness," said HSBC, citing its survey which showed Dubai property prices in December fell 23 % from their September peak. HSBC said the possibility of a more prolonged economic slowdown may force Emaar to postpone or shelve its projects until there are clearer signs of recovery.

The property sector in Dubai, the emirate's major growth driver, has seen a surge in the last five years but has been hit hard by the global financial crisis, forcing developers to put at bay their projects as liquidity dried up."For UAE sales projects, we assume the cancellation of all future projects and only include those that are near completion. We also apply a 50% probability to all international projects."

Emaar properties Dubai Marina

The bank expects the occupancy of Emaar's retail and commercial buildings to continue to fall through 2010, along with Emaar's hotel occupancy.

"The sheer scale of development at Emaar will stretch management and operational capacity, introducing the risk of delays and/or even project cancellation." The current oversupply also has negative implications on future sales and could force Emaar to abandon some projects, said HSBC.

The upside is that "any decision to slow down on its projects limits the need to reinvent cash flow in the near term and serves to strengthen the balance sheet."

"We estimate that if Emaar were to drastically scale back projects, net cash could increase to around Dh11.5 billion by 2010, from our previous estimate of Dh300 million."

HSBC said that Emaar has also responded well to the property crisis by adjusting its strategy and shifting its focus from high-end developments to more affordable mid-income housing.

Emaar shares on Wednesday ended 9.75% down to Dh1.85