Morgan Stanley Says Dubai Builder Emaar Faces Prisoner’s Dilemma

Dubai’s largest property developer faces a quandary heading into 2021, according to Morgan Stanley.

Emaar Properties PJSC can stop new projects, which would relieve Dubai’s over-supplied property sector but risk the company losing market share. Or it can resume them, bolstering its position relative to competitors while saturating the market even more.

The company “faces a prisoner’s dilemma,” Morgan Stanley equity analyst Katherine Carpenter said Tuesday.

Its subsidiary Emaar Development PJSC will probably “choose a suboptimal outcome, resuming launches next year,” rather than maximizing shareholder value by waiting for another two years, she said.

The U.S. bank’s note came a day after Mohamed Alabbar, chairman of both companies, said he’s stopping new developments.

While he didn’t say how long the moratorium would last, the comments mark a turning point for the builder of the world’s tallest tower, the Burj Khalifa in Dubai. Emaar has for years resisted other developers’ calls to curb a surge in supply that’s seen home prices in the emirate slump by 30% in the last six years.

“We don’t build anymore,” Alabbar said at a conference in Dubai. “The government entities decided to stop new developments almost a year back, but Covid definitely put the brakes on.”

Rental rates reached an all-time low in Dubai last quarter, while construction activity picked up, according to broker JLL.

Even when the coronavirus pandemic hit and media reported that some of Emaar’s projects were being halted, the developer refused to acknowledge those changes publicly.

Morgan Stanley has an equal-weight rating on both Emaar Properties and Emaar Development. The former’s shares rose 3.5% to 3.59 dirhams in Dubai on Tuesday, paring this year’s loss to 11%. Emaar Development rose 1.8%.

©2020 Bloomberg L.P.

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