Palm Island's success is good news for Emaar

Last week's sell-out success at Palm Island Jumeirah, with deposits paid for all 2,000 villas, appears to have depressed the share price of Dubai Financial Market's most talked about stock, Emaar Properties.

Yet surely investors are misreading the market. Palm Island is not a threat to Emaar, especially now that its 2,000 villas are sold. Indeed, the success of Palm Island shows that the Dubai market has a considerable appetite for property investment, and that Emaar Properties will make a fortune in years to come.

The success of Palm Island surprised its organizers who found themselves overwhelmed with deposits from buyers last week. In most cases investors did not know which plot or house-type they were buying, or exactly when the property would be ready for occupation.

But investors moved like a pack, perhaps correctly sensing that the prestige property of Palm Island looked cheap on any international comparison. However, in the absence of mortgage finance and purchasing land that is currently undersea, they were still taking a risk, albeit one underwritten by the Government of Dubai.

Emaar Properties has a considerable advantage over the Palm Jumeirah in that its supply of property is far greater, and its onshore land bank contains sufficient prime locations to satisfy the needs of many different potential buyers.

For upmarket properties Emaar has its Emirates Hills development around two golf courses, and by the Dubai Marina there is space for many apartment towers to sell to expatriates. Moreover, Emaar has a growing rental income from its mid-market Emirates Lakes project adjacent to Emirates Hills.

Of course, not everyone is in a position to rush out and buy an Emaar apartment, or house in Emirates Hills, just because they missed out on Palm Island. But Emaar shares, now languishing at less than a third of net asset value, are probably a better buy than the villas that sold like hot cakes last week, and much easier to buy and sell. They can also be owned by foreigners.

Stock market commentators also say that with the US dollar now in decline, one way to protect your assets is to buy into real assets such as property or property shares. That also sounds like a bull call for Emaar, so why are its shares falling?

Some observers say Emaar needs a management shake-up like the one seen at Dubai Investments this week. Perhaps that is what the market needs to renew its confidence in the company, though surely the profits in the pipeline for 2002 will speak loudly enough and that ought to be a vote of confidence in its current management team.