Is Emaar Properties Shariah Compliant? Read This To Find Out.
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Shariah Stock Status Report :: Emaar Properties :: UAE :: 29th July 2020

TICKER

EMAAR UH

Company Name

EMAAR PROPERTIES PJSC

Shariah Compliance

SHARIAH COMPLIANT

DP RATIO

2.43%

Emaar Properties is a leading company that is engaged in real estate development. The company is located in the United Arab Emirates (UAE) and it was established in 1997.
Shares of Emaar properties are listed on Dubai Financial Market. The company has the distinction of having developed on of Dubai’s most famous project called the Burj Khalifa which is known as the tallest building in the world.
The company has earned a name in the domestic as well as in the international real estate development market. Emaar Properties has a global presence in more than 36 markets across the world including GCC, Middle East, Africa, Asia, Europe and the United States.

Brief History of Emaar properties
Mr. Mohammed Alabbar – started this Emaar Properties in 1997 with the mission to become the leading property developer in UAE and the globe. Emaar properties is the first company to have shares listed on the stock exchange whose stocks are available to foreign investors to trade after its IPO in the year 2000. Emaar Properties deals with property investment & development, property management services, retail, malls and hospitality.

Is Emaar Properties Shariah Compliant?

Incomes generated by companies can be primarily classified into two sources:

1- Income from core business activities and business operations.

2- Income from Non-operating and other activities.

As per the Shariah screening standards set up by the renowned Shariah Scholars Board of Islamicly, if the non-permissible income generated from operating business activities of a company is less than 5% of total income, the stock passes the Shariah compliance sector screening. To know more about Non-Permissible and prohibited business activities, read the shariah screening criteria here

Operating business of Emaar properties

The operating income of the company consists of:

1- Revenue from Real Estate
i- Sale of condominiums
ii- Sale of Villas
iii- Sale of Commercial units, plots of Land and others

2- Leasing, retail and related activities

3- Hospitality

Tricky Areas:


The tricky areas from the Shariah point of view in such real estate development companies is the revenue derived from retail and hospitality segment. Revenue from retails and hospitality typically include lease rental revenue from such business establishments which run restaurants (serving alcohol/pork), supermarkets (selling alcohol/pork/tobacco), Cinemas etc. Such lease rentals are considered non-permissible.

Further, it needs to be assessed if a real estate developer earns revenue from leasing commercial space to conventional financial service industries. Such lease rental revenue is also considered non-permissible. Studying the tenant profile, the company does seem to have revenues from such non-permissible areas but the exact revenue derived from such non-permissible activities has not been disclosed by the company. Thus, we have communicated with the management of Emaar Properties and have received a response from them. Based on their response, we have calculated the non-permissible operating income which was found to be less than 5% of their total income.

Segmental Revenue Break Up - Operating Income

Emaar Properties derives revenue from three segments:
-Revenue from Real estate
-Leasing and Retail
-Hospitality

The below table has a detailed revenue break up along with its Shariah compliance classification

Operating Revenue in Millions of AED for year ended 31st December 2019.

Segment Description

Segment Revenue

Non-permissible Revenue

% non-permissible revenue

Comment

Sale of condominiums

11,119.12

0

0.00%

Shariah Compliant

Sale of Villas

5,191.35

0

0.00%

Shariah Compliant

Sale of Commercial units, plots of Land and others

1,023.94

0

0.00%

Shariah Compliant

Leasing, retail and related activities

1,298.09

22.13

1.70%

Based on the communication with the management of the company, Non-permissible revenue has been calculated

Hospitality

5,953.43

100.8

1.69%

Based on the communication with the management of the company, Non-permissible revenue has been calculated

TOTAL

24,585.93

122.93

0.5%


Business Compliance with Shariah

Non-Permissible Income from Operating Activities of Emaar Properties

Total Revenue

24,585.93

Non-Permissible Operating Revenue

122.93

% of Non-Permissible Revenue

0.50%

Since the revenue from non-permissible operations income is less than 5% of total income, Emaar Properties passes the Shariah business sector screening criteria.

Shariah Business sector Compliance: PASS

Let us analyse the Non-operating income of the company:

1- Other Operating Income
2- Finance Income
3- Other Income
Here, the finance income seems to be the only non-permissible income.
As per the Shariah screening criteria such non-operating non-permissible income is not considered for determining the Shariah business sector compliance. But such non-permissible non-operating revenue is included in calculating the dividend purification ratio.

Segmental Revenue Break Up for Non-Operating Income

Non-Operating Revenue in Millions of AED for year ended 31st December 2019.

Segment Description

Segment Revenue

Non-permissible Revenue

% non-permissible revenue

Comment

Other Operating Income

525.756

0

0.00%

Shariah Compliant

Finance Income

652.329

528.39

81%

Finance Income includes Islamic income as well as conventional interest income earned from cash deposited with Banks

Other Income

1,067.51

0

0.00%

Shariah Compliant

TOTAL

2245.592

528.39

23.53%

Non-Operating Revenue in Millions of AED for year ended 31st December 2019.

Revenue Description

Non permissible Revenue (millions of AED)

Non-permissible operating revenue

122.93

Non-permissible non-operating revenue

528.39

Total Non-permissible revenue

651.32

This is worth mentioning that the total non-permissible income will be used to calculate the dividend purification Ratio

Shariah Financial Ratio Screen:

As Emaar Properties passes the sector compliance screening, the next step is to check the Shariah financial ratio compliance.

(All figures in millions of AED as on 31st December 2019)

Particulars

Amount

Remarks

Average Market Cap

36690.106


Debt

23101.901

Islamic debts

11177.621


Adjusted debts

11924.28


Debt Compliance Ratio

32.50%

- Within limits

Cash

10326.822


Cash Compliance Ratio

28.15%

- Within limits

Total AR

11169.742


Receivable Compliance Ratio

30.44%

- Within limits

Since all the ratios are within the limits, the stock passes the Shariah Financial ratio compliance

Shariah Financial ratio Compliance: PASS

Dividend Purification Calculation


As Emaar properties passes the sector screening compliance as well as the financial screening compliance, investment in this stock is permissible as per the Shariah principles. But the income earned from non-permissible activities (operating business and non-operating business activities) needs to be cleansed and given to the charity. This is called dividend purification.
You can check the Shariah compliance of Emaar properties on Islamicly. It will be displayed as shown below:

The dividend purification for Emaar Properties is calculated as

Non-Permissible Revenue including interest income /Total Revenue

Hence the income to be purified for this stock is calculated as below:

Revenue Description

Non permissible Revenue (millions of AED)

Total Revenue of the Company (Gross)

26,831.52

Total Non-permissible revenue

651.32

Dividend Purification Ratio

2.43%

Islamicly App / Web version has calculated the DP ratio for this stock and you can see how it looks like on the App.

Source:
All the above information is based on company website and the financial report as on 31st Dec 2019.

Conclusion:
Based on our research, the data and the information provided above, EMAAR Properties is Shariah compliant as per Shariah principles. Since the compliance of stocks keeps changing on the basis of price change or financial numbers or increase and decrease in non-permissible income, Emaar properties may change its compliance in future.

To get the updated Shariah compliance status of Emaar Properties please download Islamicly App and check the most updated Shariah compliance status.

Do watch what one of the pioneering scholar of Islamic finance says about Islamicly here:

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