Real estate companies, especially the listed ones, may face fresh irritants this year, thanks to the handsome profits they have already booked from "valuation gains" in the past, said accounting experts.
Some of them may have to restate the profits they have already reported in the past in case the valuation of their investment properties falls towards the end of 2009 in comparison with that of the same period last year.
The profit and loss (P&L) statements of some companies show that they have made huge profits from valuation gains in the past few years, while doing the "mark-to-market" on their own investment properties, a provision allowed by International accounting standard (IAS) 40.
There are mixed feelings with regards to booking valuation gains in this market whereas some argue that it is not advisable to book gains generated by fresh valuations in a market that is not time-tested. Most experts are of the view that there could be a drop in property valuation and that could necessitate these companies to book a loss under IAS 40.
While Rak Properties has made Dh79.21 million from valuation gains in 2007, the same for the nine-month period in 2008 was to the tune of Dh59.807 million.
Aldar Properties reaped Dh1.532 billion on account of fair value gain on investment properties in 2008, whereas the most of the profit for 2007 came from valuation gain as it contributed to the extent of Dh1.821bn towards the 2007 net profit of Dh1.941bn.