What’s Going On?

A further sign of confidence in Dubai’s real estate sector was this week’s announcement that Dubai Properties Group (DPG) will resume work on its Mudon (“cities” in Arabic) development located in Dubailand. Although the initial US$ 11 billion project was for a 678 hectare mixed use development, including 3,200 villas and 8,500 apartments, the restarted work will cover only 350 villas. In July, Emaar acquired a plot of land, in the same location, from DPG for an undisclosed amount to develop a mixed-use neighbourhood As Dubai’s population is set to double over the next ten years, and the current demand for quality residences is buoyant, these two projects should prove profitable.

When announced at the height of the real estate frenzy, Dubailand was to be a US$ 90 billion project, twice the size of Walt Disney World. How times have changed!

Unfortunately, what has not changed are the real estate scams that were prevalent during the boom times. The latest rogue appears to be a certain Haitham Mahmoud Al Kouatly, CEO of Shamayana Entertainment, who has managed to con hundreds of Dubai residents in an elaborate scam involving millions of dirhams.

Cityscape Global will take place in the first week of October and organisers are expecting a 25% upturn in the number of delegates to around 22,000. This year, the event, which has been on the calendar since 2002, will see overseas exhibitors take up over 50% of the floor space. This strong global interest augurs well for the state of the local real estate sector.

The Dubai-based Islamic lender, Tamweel, forecast a 30% increase in 2012 loans to US$ 2.2 billion. It had already seen a H1 26% rise in home finance applications whilst property prices have risen on average 15%  over the previous eighteen months with higher increases in prime locations such as The Meadows, Business Bay and DIFC. It will be interesting to see their Q3 earnings report!

The property arm of Dubai World, Limitless, expects to finalise its US$ 1.2 billion creditors debt deal this month. This will not be the first time that the troubled company has rolled over its loan initially due for a March 2010 settlement.

Just as buoyant is the  travel sector with the strength of the ME carriers in evidence once again as IATA reported year on year traffic growth of 11.2% (compared to the global return of 3.4%) as well as a 12.4% rise in capacity. More strikingly, as global air freight demand fell 3.2%, local carriers saw a 16.0% jump year on year.

When Etihad began flying in 2003, the doom and gloom merchants were forecasting the imminent demise of Emirates Airline. Nothing could be further from the truth as the Dubai-based operator has gone from strength to strength to become the world’s largest international carrier.

As expected, Emirates have signed a 10-year codeshare deal with the loss making Qantas. This will see the Australian airline moving its European hub from Singapore to Dubai with potentially an additional 900 daily passengers arriving from Australia into Dubai. The existing 17-year QF/BA arrangement and the QF/Oneworld alliance must now be in some doubt.

At the same time, Dubai International Airport has just announced that July saw over 5 million passengers – the highest monthly figure ever recorded and 6% up on last year. The YTD figure of nearly 33 million is a massive 12.4% hike on the same period in 2011. As reported previously, aviation contributes about US$ 22 billion to Dubai’s GDP.

This week saw the opening of the US$ 7 billion Khalifa Port some 40 km north of Jebel Ali. Although currently much smaller than its Dubai neighbour, (2.5 million TEU capacity cf 15 million), some may see it as a major rival taking business away. Only time will tell, and although both ports may take a slight hit in the inevitable global recession and the subsequent slowdown in trade,  there is no doubt, as have the local airlines managed, so will these two major ports.

Along with travel and trade being important elements in the rise of Dubai’s fortunes so is the third “T” – tourism. The sector grew 20% in 2011 as Revenue figures hit US$ 4.3 billion with a similar increase expected this year. The growth in the number of new hotel rooms is staggering – having risen by 26,500 in the past nine years of which nearly 70% occurred in the 2008 – 2010 period. 2012 should see another 4,000 rooms added to the inventory with a further 10,000 under construction.

Rezidor announced that it was developing a new hotel – a 300-bed Park Inn by Radisson – in collaboration with Aabar Investments. The hotel operator also reported that it would build two more upscale properties to cater for different market segments.

Meanwhile Jumeirah Group has expanded further in Russia with a contract to manage the Tsarev Sad apartment hotel in Moscow. The developers are expected to invest US$ 300 million to finish off the project. It has also launched The Grosvenor House Apartments by Jumeirah Living in London – the first exclusive hotel residences in the English capital comprising 130 apartments. Two of Jumeirah’s local restaurants  – Al Mahara in the Burj al Arab and The Rib Room in Emirates Towers – were also named in a list of the world’s best eateries. (Surprisingly the iconic Ravi’s did not make the Daily Meal listing).

On the corporate front, Dubai’s Abraaj Capital has been shortlisted for the second phase of an Indonesian healthcare-related auction that could be worth US$ 300 million. The operator involved, Siloam, is that country’s largest private hospital company. Abraaj, founded ten years ago by Arif Naqvi, currently manages US$ 7.5 billion in funds. The founder was also in the news for a different reason when it became known that he has become the largest shareholder of the troubled Scottish football club, Rangers.

Al Habtoor Group, one of Dubai’s largest family-owned businesses, is considering an IPO. The company employs over 40,000 and has interests in a myriad of sectors including construction, real estate, insurance, vehicles and hospitality.

The Dubai Financial Market, had another flat week closing 8 points up at 1556. So far this year it has seen an impressive 14.9% gain – another indicator of the growing confidence in the Dubai market.

No shock to see the banking industry in strife – this time, the UK the Serious Fraud Squad is investigating Barclays again in relation to payments under specific commercial agreements between the bank and Qatar Holdings. This is in regard to the 2008 GFC when Barclays managed to raise US$ 19 billion from several investors including QH and thus avoided the need to be bailed out by the Brown government.

Also blotting their copybook once more is RBS where there is talk of discontented shareholders taking a US$ 5 billion legal action against the bank and its former CEO, Fred “The Shred” Goodwin. This concerns a US$ 18.5 billion 2008 rights issue ahead of its government bailout when investors lost 90% of their capital. The mess the bank is in can be seen from it already having put aside US$ 2 billion over mis-selling payment protection insurance and a further US$ 200 million for its recent IT debacle. To exacerbate their problems, the US authorities are now actively pursuing the much troubled bank over their possible violations of Iranian sanctions.

Eurozone reported a 13th straight month of output weakening and the fact that the PMI is at 45 indicates that the economy is deteriorating with no apparent resolution to the crisis. The knock on effect of low growth and spending cuts is being felt in China, India, South Korea, Taiwan and other countries that trade with Europe. China’s business activity is falling at its fastest rate in over three years whilst India has expanded at its slowest rate this year. PMIs in South Korea and Taiwan fell yet again in August indicating that these countries’ economies may be cooling quicker than first thought. In contrast, UAE’s reading in August was 53.4 with anything above 50 indicating expansion.

The World Bank has issued a warning about global food prices which have leapt 10% in July alone. As intimated in the 29 July Blog – “Go Your Own Way” – the main reasons were the US heatwaves and drought conditions in the growing regions of Europe resulting in 25% jumps in the prices of corn and wheat and 17% in soybeans. The Bank has highlighted that ME countries are exposed as they rely heavily on imports, as well as spending a large proportion of their income on food.

With the week drawing to a close it appears that little has changed on the global and economic fronts. How many more need to be killed before there is an end to the tragedy which is Syria? How many more mega-billion frauds are there going to be in India before the people of that country wake up? When will the eurozone take decisive action to end their 3-year crisis which threatens the global economy? How can con-merchants like Haitham Al Kouatly get away with a  multi-million dirham real estate scam? What’s Going On?

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1 Response to What’s Going On?

  1. John hyde says:

    Love reading this Tim, very informative.

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