Here We Go Again!

Shanghai-SkylineThe big news story of the week came from Arabtec as it announced that the Abu Dhabi state fund Aabar (a 22% shareholder in the Dubai-based builder) had awarded the company a massive US$ 6.1 billion contract for 28 buildings in the capital and nine in Dubai. Three of the six hotels will be located in Business Bay, with the other three, plus three serviced apartments, being in nearby Al Jaddaf. Aabar plans to spend an additional US$ 13.9 billion on construction and all work will be routed through Arabtec. Even before this news, their shares had almost doubled over the past six months and a further 12% jump this week saw the stock reach US$ 1.37.

The Al Fahim Group received a US$ 1.85 billion boost with the Hong Kong-based Chow Tai Fook buying into the Dubai Pearl project. The estimated US$ 6 billion project, financed by a consortium headed by AFG, will include seven hotels, 1,490 serviced apartments, a theatre and over 60 restaurants. On completion, it will be home to 9k and a workplace for a further 12k.

As part of a US$ 273 million redevelopment of Majid Al Futtaim’s Mall of the Emirates, Drake & Scull International have been awarded a US$ 30 million MEP contract. DSI’s shares hit a record high (US$ 0.47) on Wednesday as it revealed that it had also won a US$ 88 million contract for a project for King Saud University in Riyadh. More good news for the company came with Nakheel awarding a US$ 102 million contract to its subsidiary, Gulf Technical Construction Company, to build The Pointe on Palm Jumeirah.

Dubai-based MAG Group and Dubai Healthcare City have signed a US$ 218 million JV to develop a 1 million sq ft project that will include two hospitals, a clinic, a hotel and apartments. It should be completed within two years.

Asteco has reported that average sales in prime residential areas surged by more than 60% last year – with rental increases following roughly in tandem. By far the largest upsurge came in Q4 which witnessed a 23% price rise in villas and apartments. The feel good factor has had a positive impact but it seems that different studies come out with different figures, with the only point of agreement being that property prices are going up. By how much, nobody really knows.

There has been a strong recovery in the commercial real estate sector. The Royal Institute of Chartered Surveyors has indicated that the UAE and Japanese markets are leading the way in this recovery with the UAE’s Occupier Sentiment Index at 46 – its highest level for six years. RICS indicate that commercial rents will rise as demand continues to be greater than supply available.

In December, the hospitality sector continued to improve its profitability levels. Despite a 4.5% drop in occupancy rates to 79.5%, all other indicator headed north – ARR (average room rate), RevPar (revenue per available room) and GOPPAR (gross operating profit per available room) by 9.1% to US$ 368.22, 3.2% to US$ 292.70 and 3.9% to US$ 260.00 respectively. The annual figures also rose by 6.5%, 7.6% and 10.3%.

There was a 13% upturn in the number of visitors to Burj Khalifa in 2013, with the 1.87 million total split evenly between overseas and domestic traffic. Surprisingly, German tourists accounted for 23% of all overseas visitors followed by UK (15%), Russia (11%) and India (11%).

It is reported that a “Tourism Dirham” charge will be levied on all hotel rooms as from 01 April 2014. The levy will vary between US$ 1.90 to US$ 5.45 per room per night and the monies raised will go towards Dubai’s international marketing budget.

wasl hospitality has added to its Dubai portfolio of seven hotels (three under the Hyatt flag and four under Starwood management) by announcing that Hilton Worldwide will introduce its midscale brand, Hilton Garden Inn, to the emirate. Both hotels, totalling 365 rooms, are slated for a 2015 completion.

It has long been reported that services at Dubai International will be curtailed between 01 May and 20 July because of scheduled runway repairs and maintenance. It now seems that 25% of flights could be affected and this will necessitate either cancellations or moving flights to the newly opened Al Maktoum International during the 80-day hiatus. To date, only flydubai, Royal Brunei and FedEx have confirmed that they will move selected flights.

There will be plenty of capacity at the new facility. Since its October opening for passenger traffic, there have only been 65k passengers, whilst 2013 air freight figures showed a slight decline to 209k tonnes.

The RTA has announced that the Dubai Metro will be extended. The Green Line will see a doubling of its track to 41 km, with a further 11 stations, bringing its total to 31. The original Red Line will be extended at either end of the track with an additional 10 stations. (Rail journey numbers continue to rise with 330 million recorded in 2013).

Deyaar reported a massive hike in 2013 profits from US$ 10.5 million to US$ 42.1 million. Almost 44% of the profit (US$ 18.4 million) for the Dubai developer was attributable to Q4 trading – a sign of increased positivity in the real estate sector.

Aramex reported a 16% increase in its profit to US$ 20.8 million. There is no doubt that the Dubai-based logistics company will be spending big on regional acquisitions in the coming year.

Having had its problems following the GFC, Union Properties seem to have put all troubles behind them when announcing an almost nine-fold  2013 profit increase from US$ 48 million to US$ 430 million.

It seems increasingly likely that the Dubai and Abu Dhabi stock exchanges will merge in the not too distant future. It is reported that due diligence has already been carried out and that the deal just needs rubber stamping by the two emirates’ governments.

The Dubai General Market Index opened the week at 3770 points and once again defied gravity by jumping 4.3% to 3931 points, when closing on Thursday; YTD it is 16.7% up on its 01 January opening of 3370. Bellwether stock, Emaar received a boost with its credit rating raised to investment grade by Standard and Poor’s and was trading at a 65 month high of US$ 2.29 – still some way off its 2005 peak of US$ 7.50 but well above its 2009 nadir of US$ 0.46.

Although still concerned about a potential property bubble, the IMF has again upgraded UAE’s 2014 growth prospect to 4.5% – well up on their last announcement in October when the rate was 4.0%. The main driver in growth would be the launch of numerous mega projects ahead of the 2020 Expo, with a limited increase expected from oil because of the increasing global supply available. It also noted that Dubai’s GREs (government related enterprises) have debts of US$ 78 billion maturing over the next four years, including US$ 20 billion to its neighbour, Abu Dhabi.

The manufacturing slowdown in China was confirmed with a decline in the monthly PMI which dropped yet again in January to 50.5. The main reasons for this fall have been put down to a decrease in domestic consumption and a reduction in export orders. A much bigger problem faces the world’s second largest economy – its US$ 24 trillion credit system is spiralling out of control with much of it wasted through corruption and unnecessary mega projects. It can only be a matter of time before the fan is hit.

Deflation fears indicate that the eurozone countries are becoming increasingly reluctant to spend money as evidenced by abysmal retail sales figures in December – down 1.6% on November and 1% compared to December 2012. Worryingly, Germany saw a 2.4% slump compared to a year earlier.

But despite this, the ECB head, Mario Draghi, still maintains that deflation is not a threat to the 17-member bloc even as the January inflation rate slowed to 0.7%, compared to 0.8% in December.  The bank kept its benchmark interest rate at 0.25%.

Some disappointing economic news greeted the new Fed Chief, Janet Yellen. For the second month in a row, weak job numbers are a cause for some concern and a potential pointer that the recovery may be running out of steam. The 113k January figure was well down on expectations. This was allied with unexpectedly weak manufacturing data – another possible indicator that the recovery is not as strong as it was three months ago.

According to Jack Lew, Treasury Secretary, the US economy may see a further default by the end of the month if the US$ 16.7 trillion debt ceiling is not raised. Despite being in receipt of US$ 7 billion daily, it would only be a matter of time before the world’s largest economy falls into bitter bipartisan infighting that will eventually impact the global stage. Unfortunately, Here We Go Again!

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