| 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 more shariah screening criteria here
Operating business of Emaar properties
The operating income of the company consists of:
1. Revenue from Real Estate
- Sale of condominiums
- Sale of Villas
- 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 | Revenue | Non-Permissible Revenue | % Non-Permissible Revenue | Comments |
|---|---|---|---|---|
| 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.
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 | 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.
Click to check how to calculate Purification of Shariah Compliant Equities with ISLAMICLY
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.
