Wishin’ and Hopin’

Emirates-a380-terminalAs the real estate sector is fast returning to its pre-GFC levels, it came as no surprise to hear that Emaar’s latest off-plan development sold out on launch day. All 280 units, available in the 55-storey Downtown Residence Fountain Views, were snapped up by eager buyers – a tangible indicator of the strength of the Dubai recovery. To try and reduce “flipping”, the developer has insisted that any reseller will have had to have made at least a 40% repayment.

Some analysts have indicated that certain residential areas of Dubai have experienced rapid growth in 2012 including The Springs, Jumeirah Islands, Arabian Ranches and Palm Jumeirah with price hikes of 38%, 28%, 27% and 20% respectively. On average, year on year villa prices were up 23% and apartments 14%.

This only emphasises that the industry is showing early signs of overheating.  The banking industry is taking steps to curb such excesses which brought Dubai to its economic knees just four years ago.  The Central Bank was reportedly advising financial institutions that it would be setting mortgage caps at 50% for expats and 60% for nationals. Meanwhile, the Emirates Banks’ Association has recommended 75% for non-locals and 80% for Emiratis. Currently of the banks’ total retail market of US$ 136.2 billion, home loans account for only US$ 16.3 billion or 12%. From very high bad loan write-offs, seen in the recent past, the industry estimates that only 0.2% of these loans are now considered bad. However some reports indicate that more than 60% of Dubai property transactions are for cash totalling in excess of US$ 25 billion.

Emirates NBD, 55.6% owned by the Investment Corporation of Dubai, has bounced back in Q4 announcing a profit of US$ 170 million and a 2.8% rise in 2012 profits to US$ 681 million. There will also be some happy shareholders as its dividend pay-out came to US$ 381 million – 25% up on last year. The bank has seen its deposits rise 11% to US$ 58.3 billion and lending up 7% to US$ 59.5 billion whilst there has been a 20% fall in bad debt provisions to US$ 1.1 billion.

Emaar Properties – a true bellwether of the local economy – saw a fourfold jump in Q4 Revenue to US$ 730 million. Its 2012 profit at US$ 577 million was 18.2% up on the year although Revenue was flat at US$ 2.243 billion – a 1.5% rise on 2011’s US$ 2.209 million. 33% of the Revenue (US$ 740 million) was attributable to its retail sector whilst 17% resulted from its hospitality and leisure sectors.

One company that is recovering well from the property crash is the Islamic mortgage lender, Tamweel PJSC, whose major shareholder is Dubai Islamic Bank. This week, it fully repaid a five year US$ 300 million sukuk maturing in January 2013.

It comes as no surprise to see Dubai International Airport become the world’s third busiest international airport, now only behind London Heathrow and Paris Charles de Gaulle. Passenger numbers were 13.2% higher at 57.6 million with a 5.5% hike in aircraft movements to over 344k.

The airport’s growth plans will be further assisted by the fact that Emirates are now taking bookings to 32 of Qantas domestic destinations following Australian interim approval of the airlines’ proposed partnership. At the same time, Emirates Airline has issued a 12-year US$ 750 million amortising bond, launched at 300 basis points; some may consider this to be slightly on the high side.

Despite the gloomy trade climate, DP World managed a 2.4% increase in its 2012 cargo handling to 56.1 million 20’ equivalent container units (TEUs). It is estimated that 80% of the world’s third largest ports operator’s revenue is derived from container handling in its 60 international terminals. With the global economy in turmoil, 2013 promises to be a challenging year for the company.

Meanwhile HH Sheikh Mohammed bin Rashid Al Maktoum has approved an expansion of the present metro network with three new lines – Purple, Blue and Gold – covering 421 km and having 197 stations. The long term project, expected to be completed by 2030, will be in three phases.

Talking of trains, the Dubai Financial Market Index is going along like the proverbial steam engine with a 16.34% gain in the month of January. Over the past week alone, it has surged 5.36% to close at 1888 points – 96 points up on its Sunday opening. Hopefully this can keep on track.

HH Sheikh Mohammed also toured the 38th Arab Health Exhibition which is the second largest of its kind in the world. The number of attendees is staggering and the impact on the hospitality sector immense. This year, it is estimated that there will be over 3,500 exhibitors, 7,500 conference delegates and 80,000 healthcare professionals taking part in this 4-day event.

Another sign of the local recovery comes with the news that Toyota has seen car sales rise by 33% in the country – and 22.5% globally to 9.75 million units – with its Lexus models surging by 50%. (Compare this to their sales in Europe where growth was less than 2%). Most other car makers have fared well with increased UAE sales, including Hyundai (up 66%) and Ford (55%). Oddly enough, the UAE dealer has had to recall 5,000 Lexus vehicles because the wipers have a problem when there is a heavy snow storm!

With the worldwide economy still in deep trouble, it is strange to see that the World Bank has had time to issue a report on the cost of money remittances. Rather surprisingly, the UAE is the cheapest place in the world to remit money from, with average costs of 3.5% compared to the global average of 8.96%. Naturally costs vary from country to country so that Pakistan at 2.46% is less than half the cost of an Indian remittance (5.02%).

A week after mining giant Rio Tinto had to write off US$ 14 billion on two bad project investments in Mozambique, Anglo American finds itself doing likewise. After reviewing its Brazilian Minas Rio iron ore operation, it seems that it paid too much for the 2007 acquisition and underestimated the cost of bringing the mine on stream by US$ 4 billion. A disappointed Chief Executive, Cynthia Carroll, is to be replaced by Mark Cutifani, currently with AngloGold Ashanti.

Yet again the IMF has deemed it appropriate to lower its forecasts. China will see the biggest growth in excess of 8% with India and the Asean economies coming in at around the 5% mark. Behind will be Latin America, ME and Africa at over 3% with the UAE nearer the 4% level whilst the US will see a 2% expansion. The latter forecast could be seen as a little optimistic as Q4 saw the US economy actually contract by 0.1% after posting a 3.1% GDP growth in Q3. Indicators point to an economy that will struggle to hit the IMF’s latest estimate with European problems, a Chinese slowdown and a domestic fiscal cliff not helping its cause.

Despite there being a projected 0.2% contraction in Europe, so many politicians are still trying to talk up its prospects and this is just not going to happen. Europe is in a mire in every direction. Youth unemployment in the UK is nearing one million and as the country heads for a triple dip recession, this is not going to improve in 2013. Spain – with its property crash, a banking system in tatters, massive debt and a severe austerity programme in place – will again contract and have inevitable civil disturbances this year.

France has been described as “totally bankrupt” by its own Labour Minister, Michel Sapin, at a time when President Francois Hollande is hoping to cut the Gallic deficit from 4.5% of output to 3%. Some hope! One wonders what Yannis Stournaras is on as the Greek Finance Minister has declared 2013 to be the country’s last year of recession. Some wish! Here we are all Wishin’ and Hopin’ that the good times continue in Dubai with our only worry being when the  new draft bankruptcy law will be enacted.

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