Dubai developers criticised for not revealing the true value of their land banks

The value of land banks held by developers in Dubai is virtually impossible to assess as they have been slow to write down losses and leave little clues as to what they are worth.

Analysts point out that the land held by publicly traded developers will have lost as much as 30% of its value from the peak in the real estate markets last year and they are concerned that such losses are not being taken account of.

Property consultants CB Richard Ellis has estimated that land values have fallen by up to 30%, but some analysts believe is could be much more.

Ian Albert, a regional director at Colliers International, said it is difficult to estimate values because there are so few transactions. But his company believes that land within the DubailandDubailand leisure and theme park development, for example, peaked at between Dh400 and Dh450 per square foot last August, but is now probably between Dh100 and Dh150, a substantial decline.

Noura Yassin, the head of valuation and consultancy at CBRE said establishing a fair value for development land was also complicated by uncertainty over whether developments would go ahead.

Others agree. 'I have seen nobody take a negative impairment charge on land. None of these guys put their land banks through some kind of stress test every quarter,' said Bobby Sarkar, a property analyst at Al Mal Capital.

General opinion is that land values on specific developments such as Dubai Waterfront, owned by Nakheel, Dubailand and Business Bay, owned by Dubai Properties will have suffered even larger falls. Property companies with large partially developed masterplans, such as the Waterfront and Palm Deira, are expected to be most affected by declines in land values, while EmaarEmaar Properties is predicted to suffer least because most of its local projects are under construction.

Analysts say some developers whose shares are publicly traded may now be overstating their land bank values. 'Theoretically land must be valued to reflect any fair value change every quarter, but it is a very flexible environment and companies are typically aware of the potential of incurring a loss,' explained Roy Cherry, a property analyst at Shuaa Capital.

Smaller privately owned developers that acquired their land on the open market, rather than having it allocated to them free of charge, may be in a worse position. 'It would definitely be helpful to have more detail or a better breakdown of the land value on property companies' books,' said Al Mal Capital's Sarkar said. 'They have so much land on their books but essentially nobody knows what that value is.'

Developers will have to reveal the values soon, it is pointed out. Analysts say that once property developers start writing down stalled projects in their accounts, or face handing over finished projects but find that buyers have defaulted, the real value of land will become clearer.