Reason To Believe

ittihad-bridge-dubaiThe property boom continues unabated with May seeing a jump in prices of 2.01% over the previous month – with apartments and villas up 2.13% and 1.56% respectively. On an annual basis, the trend was similar at 17.3% and 12.2%. An earlier June report indicated that on their global scale, Dubai Q1 price rises of 9.0% were the second highest to China’s 10.7%. How long this can go on for – before a damaging asset bubble becomes a problem – is a matter of some conjecture.

There is no doubt that consumer confidence has returned and this is borne out by the fact that Majid Al Futtaim Holdings (MAF) is planning to invest US$ 817 million in its Dubai businesses over the next five years. These will include two hotels, four Carrefour supermarkets and two hypermarkets and a new cinema.

Scarcely a week goes by without a major Emaar Properties announcement. Now the developer is teaming up with Meraas Holding to build budget hotels under the “Dubai Inn” portfolio. This will be a welcome addition to the hospitality sector which is dominated by 5-star hotel brands – currently making up 62% of the total available rooms. With a raft of affordable hotels planned, this will introduce a new type of tourist to the city who hitherto may have been put off by high hotel prices. This will be Emaar’s fourth type of hotel branding following its Address, Armani and, its recently launched, Vida hotel ranges.

Following the success of its recent launch with Paramount Hotels & Resorts, with reported sales in excess of US$ 272 million, Damac Properties have announced their latest offering – Damac Villas by Paramount. This gated community will be located in the Akoya development which will include the up-market Donald Trump Golf Club.

Even the Dubai Multi Commodities Centre is getting in on the act, with plans to build the world’s tallest commercial tower, replacing Taipei 101 which stands at 508 metres. The tower may well be needed as the DMCC has attracted more than 4k companies since 2009 and expects the current trend of 200 new companies a month to continue.

Troubled developer Nakheel has sold two more hotel plots on Palm Jumeirah which brought in US$ 191 million. The company expects work to commence shortly on its two planned Palm developments – The Pointe and Nakheel Mall and Hotel – as well as its 240-room hotel at Dragon Mart and an economy class one at Ibn Battuta.

It has been reported that 736 buildings were completed in Q1 with a value of US$ 1.02 billion – a reflection of the buoyancy in the Dubai market. This was a 6.6% increase on already impressive Q4 2012 returns. 39% (or US$ 393.4 million) of this total were for multi storey buildings.

Not so good news for certain landlords with reports that some local developers have upped their service fee charges. It seems that owners in JBR, built by Dubai Properties Group, fall into this category as the company tries to recoup earlier losses and hike prices to reflect current market conditions.

On the Palm, DEWA has launched a new water pipeline at a cost of US$ 15.7 million which will help meet future demand. The laying of the water transmission pipes, covering 3 km, will take eighteen months to finalise.

The newest tourist attraction is a proposed crocodile theme park. Dubai Municipality will develop the US$ 2.7 million facility in liaison with entertainment company, White Oryx. The 20k sq mt attraction will be ready by Q2 2015.

Memon Investments have sold their 40% built Dubai Sports City Frankfurt Tower 1 to Orion Holdings for a reported US$ 6.0 million. When complete, the project will have 224 residential units of varying sizes.

HH Sheikh Mohammed bin Rashid Al Maktoum has approved Ministry of Works projects, totalling US$ 545 million, including the first phase of the US$ 163 million Al Ruwayyah hospital which will be finished within two years. Also announced was the Al Ittihad Bridge which will span the Creek and will replace the temporary floating bridge. Construction of the 61 metre wide, 15 metre high and 12 lane bridge will start next year and will cost an estimated US$ 300 million.

The world’s largest container ship at 366 metres – MSC La Spezia – was the main attraction at the opening of the new extension to Jebel Ali Port’s Container Terminal 2 (T2). The terminal wall has been extended by 15% to 3k metres and has seen its capacity increase by 9.3% to 15 million TEUs (twenty foot equivalent units).

Despite numerous false starts, it does now seem likely that Dubai will finally be home to the world’s first underwater hotel, currently being developed by Dry Docks World and Deep Ocean Technology, a Polish company. Eventually the luxury hotel will be located in 30 metres of water off the emirate’s coastline.

With a further sixty Airbus 380s still on order, Emirates is in the throes of arranging finance for four of these aircraft by means of an instrument, known as an enhanced equipment trust certificate (EETC). The US$ 630 million facility will comprise Class A notes, valued at US$ 462 million – with a final maturity of 10 years – and the balance of Class B notes.

The Emirates Air Line, a 1.1 km cable car system crossing the Thames, has carried over 2.4 million passengers in its first year of operation. Later this month, the world’s best airline will open another London tourist attraction – the Emirates Aviation Experience – to be located in Greenwich.

Dubai Duty Free once again saw its sales surge – for the first six months up by 13% to US$ 872 million. Not many duty frees can boast of every departing passenger spending US$ 48 on their way out. With the future opening of Concourse D, as well as Al Maktoum International, the future for the airport retailer is indeed rosy.

Due for completion by late next year, work will soon commence on a food processing facility in Dubai Investment Park. Al Islami Foods is planning to spend US$ 27.2 million on the plant, that will cover an area of 11.5k sq ft, and will be able to produce 18k metric tonnes of food a year.

On the local bourse, the Dubai Financial Market Index ended the week on 2264, with all indicators heading north – weekly by 1.89%, YTD by 45.45% and yearly by 58.43%. With the double whammy of the holy month of Ramadan and school summer holidays, the next few weeks will witness subdued activity, despite what should be an impressive Q2 reporting season

With the price of gold having dropped 35% since its September 2012 high of US$ 1,922, the Canadian miner Barrick Gold, the world’s largest, is considering a write down of a massive US$ 5.5 billion on an investment in its Pascua-Lama facility on the Chile-Argentina border. (Gold closed on Thursday at US$ 1,251).

The week has not been a good one for the eurozone with previously unresolved problems resurfacing.  The troika is not happy with the lack of promised reform in the Greek civil service and, if no agreement is reached about future progress, there is a possibility that the country will be unable to repay a US$ 2.86 billion loan next month and, even worse, the IMF may stop a US$ 10.5 billion payment – part of its US$ 240 billion bailout package. With unemployment levels at 27%, the country is in its sixth straight year of recession and, with its citizens having lost over 30% of their disposable income, there is no way that Prime Minister Antonis Samaras can consider imposing further austerity measures.

It is reported that the French government is to make cuts of US$ 18.2 billion in state expenditure as the country continues to struggle. Even the Italian Economy Minister, Fabrizio Saccomanni, is forecasting possible civil unrest as it embarks on another round of public spending cuts. To add to his problems, the country is burdened with debts of over US$ 2.59 trillion!

Spanish banks are still in the doldrums as the country has still got grave economic problems and some consider that there is still plenty of mess to be cleaned up. The Central Bank has directed lenders to review their refinanced loan portfolio of US$ 270.8 billion and expect to write off at least another US$ 13 billion.

In 2010 and 2011, HSBC launched two US$ 100 million funds and added a further US$ 72 million last year, to help local SMEs. Now the bank has announced that it is in the throes of closing some accounts of companies for the apparent reasons that it wants to increase capital returns and streamline its operations. Having already pulled out of sharia banking here, this is another step that seems to point to the fact that the bank wants to cherry pick and is not too concerned about Dubai’s economic future. It will give “departing” customers 60 days’ notice, many of whom are asking for a Reason To Believe.

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One Response to Reason To Believe

  1. Great article, well researched.

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