DUBAI(Reuters) – Shares in Dubai’s Emaar Properties tumbled to a 28-month low on Sunday as foreign investors seeking safer assets sold the stock, fearing mortgage defaults would hurt its operations in the United States.

Emaar dropped 1.9 percent to end at 10.30 dirhams ($2.80), its weakest close since April 13, 2005. It touched a 28-month low of 10 dirhams during the session.

Emaar’s home building subsidiary, John Laing Homes in the United States, made up 16 percent of Emaar’s revenues in the second quarter. The slowing U.S. housing market was one of the reasons the Dubai developer missed analysts’ profit forecasts.

That was before the rising defaults on U.S. subprime, or high-risk, mortgages spilled into global credit markets in July, driving up borrowing costs and triggering a flight from risky assets.

Although shares in other Gulf companies courting foreign investors have also tumbled in the past week, much of the selling focused on Emaar, the largest Arab property developer by market value.

“Emaar operates in key U.S. markets that have been directly affected by subprime market weakness. As a result, Emaar will likely reflect the issues with the U.S. housing market in its financials,” said Mohammad Kamal, real estate and construction sector analyst at Deutsche Bank in Dubai.

“The rising level of foreign institutional ownership in Emaar’s stock may strengthen the link between the stock’s performance and the health of the U.S. housing industry,” Kamal said.

Foreign investors have been cashing out of shares in the Gulf in the past week in a global flight from risky assets triggered by concern that U.S. mortgage defaults could dry up credit for companies and households.

Uncertainty about a deal with the Dubai government has increased the perception of risk surrounding Emaar.

The company’s shares have fallen about 13 percent since Emaar said on March 19 it would give the government a majority stake by swapping stock for land with Dubai Holding, owned by the emirate’s ruler.

Emaar has yet to give details of the deal, including the extent and value of the land that will be exchanged for stock.

“On a valuation perspective, Emaar looks good. But the land deal with Dubai Holding could change the valuation of the shares so that’s another factor investors are thinking about,” said Jalal Faruki manager of Al-Mal Capital in Dubai.

Emaar is trading at a price-to-book value of 2.14 times, at a discount to the UAE real estate sector, and at 8.5 times expected 2007 earnings, according to Reuters data.

Dubai’s benchmark index ended 1.35 percent down at 4,140.86 points, its lowest close in more than 13 weeks.

Foreign selling also hit markets in Qatar and Abu Dhabi.

Aldar Properties dropped 2.10 percent. Aldar almost doubled in value between Feb 17 and the end of July after foreigners were allowed to buy its shares.