A Hard Rain’s Gonna Fall

nakheel-deira-islandsIt seems that the government has been successful in its aim to take the heat out of the burgeoning property market. A mere 1% hike in Q1 prices indicates that the introduction of a mortgage cap, along with the doubling of transfer fees to 4%, has had the desired impact. Q2 is likely to see similar returns but, with current demand outstripping new supply, H2 may well see higher price hikes.

Although local commercial rents continue to escalate so much so that Dubai is now the costliest regional market, CBRE’s latest report indicates that Dubai is still relatively cheap on the global scale. The emirate is ranked 23rd, with costs of US$ 92.56 per sq ft – a long way behind the likes of London’s West End, Hong Kong and Beijing with rates of US$ 277, US$ 242 and US$ 194 respectively.

Another report by Knight Frank shows that there was a 6% increase in residential prime rentals in Q1 – the fastest rate anywhere in the world. There are some estimates that put rental increases over the past two years at 45% and, if this trend were to continue, it could mean a mini-exodus, as residents move to other emirates for more affordable property.

Three Dubai developers have joined forces to build a major development that will have 2k residential units, a hotel, office buildings and retail outlets. Aristocrat Star Real Estate Development, PAL Developments and Pacific Ventures have yet to announce the complex’s location or price but hope to start work in September.

RSP Architects have won a US$ 10.9 million design and supervision contract for Nakheel’s 620k sq mt entertainment hub on Deira Islands. When completed, the 15.3 sq km site will have added 21 km of new beach and is set become a world-standard resort.

Following a slight decline the previous month, May has seen a further drop for Dubai’s hotel occupancy rates from 84.3% to 82.2%. This fall was compensated by a 4.6% jump in profitability to US$ 309 and a 3.5% increase in RevPAR (revenue per available room) to US$ 248.

Sheikh Hamdan bin Rashid Al Maktoum, deputy ruler of Dubai, has ordered that landowners, who have suffered property damage caused by Dubai Municipality expansion work in the CBD, can now claim damages. Depending on the size of the claim, compensation can take the form of cash up to a value of US$ 545k, the option to have an additional floor built on their building or a new plot of land.

This week, Emirates increased its fuel surcharge to reflect recent rises in oil prices. In its latest annual accounts, for the year ending 31 March 2014, the airline had seen its fuel bill up 10.4% to US$ 8.4 billion, accounting for 39.2% of its total operating costs of US$ 21.3 billion.

With still another three weeks before the 80-day runway maintenance is completed, it was not surprising that May passenger numbers dropped 2.5% to just over 5 million; airport movements reduced by 26.6% to 22.9k. Dubai Airport has announced that trial runs will start next month for Concourse D. This new terminal, linked by train to Terminal 1, will be used by 100 airlines and will help to increase the airport capacity to 90 million passengers.

Although global air cargo in May showed a 4.7% expansion, year on year, the Middle East growth was almost double at 9.3%. This is a sure indicator that the regional economic climate and business confidence are improving at a much quicker rate than say North America, Europe and the Asia Pacific where growth rates were much lower at 2.4%, 3.4% and 5.3% respectively.

The RTA is planning to spend a further US$ 10 million on ten footbridges with the aim of reducing pedestrian accidents.Over the past seven years, fatality rates have dropped from 9.5 per 100k to 1.2k. as footbridges have increased sevenfold to 100 over the same period.

Following their move two years ago, introducing formal assessments and licensing of all real estate agents, RERA have now announced annual testing. In future, all property brokers have to pass an exam set by the Dubai Real Estate Institution (DREI) for annual renewal purposes.

Surprisingly, 7-Eleven convenient stores – with almost 53k outlets worldwide – will make their Dubai début next year. The local company, Seven Emirates Investments, expects to roll out a further 100 stores in the UAE by 2017.

Already with a US$ 100 million Indian order book, Dubai-based Drake & Scull International has won a US$ 83 million contract to build a  400 kV 152 km transmission line for the Uttarakhand Project.

Local developer, Eagle Hills has announced a US$ 5.5 billion investment that will see the regeneration of the run-down Belgrade Waterfront. The project in Savamala, due to start next year, will include a 200 mt tower and is set to become the residential and commercial hub for the Serbian capital. With Emaar’s chairman, Mohamed Alabbar, an executive director, there is every chance that the 1 million sq mt project will be a success.

Following the April acquisition of Dubai-based National Petroleum Services, for a reported US$ 500 million, Abu Dhabi’s Waha Capital has acquired 20.56% of the company for US$ 76 million. NPS employs over 1,300 and is primarily involved in oil well servicing and testing in several countries in the Mena region and Malaysia.

As a result of a major improvement in its liquidity following the February the issue of a 5-year, US$ 300 million sukuk, S&P have upgraded Dubai Investment Park Development Company’s rating to BB+. DIP, wholly owned by Dubai Investments, is a 23 sq km mixed-use complex comprising residential, commercial and industrial interests.

Amlak Finance, 45% owned by Emaar, is proposing to restructure up to US$ 2.7 million in debt by which if agreed, by the stakeholders, will see the Islamic mortgage provider make an immediate cash payment of US$ 545 million and repay the balance over a 12-year period. Depositors have been given two months to agree to this proposal.

Another company, Limitless, part of Dubai World, is requesting creditors for a two year deferral on the first tranche of a US$ 1.2 billion loan due in December. The debt was initially restructured some three years ago since when rates have dropped and more favourable terms are now being requested.

Q2 had promised so much and delivered so little for the local bourse. Having started the period at 5059, it recorded its first quarterly loss in three years to drop 22.1% to close on 3943 with Arabtec the big loser shedding 59.2% to US$ 0.71 whilst Emaar was down 12.2% at US$ 2.32. Apparent lack of transparency, profit taking, margin trading, even unsubstantiated rumours and certain banks actively encouraging loans for local stock trading are some of the reasons espoused for this bloodbath.

The DFM, opening on Sunday at 4223 points, had another turbulent week to close Thursday up 4.2%, or 177 points, to 4400. Although the market is 30.6% up on its 01 January opening of 3370, it is 18.1% down on its 2014 high of 5374 recorded on 06 May. Bellwether stocks, Emaar and Arabtec, ended the week on US$ 2.05 and US$ 0.96 respectively.

Whilst not performing to its expected high standards, the Argentine football team is in better shape than the country’s economy. Its diminishing foreign reserves have declined to US$ 30.4 billion despite the de Kirchner government introducing measures such as a 35% tax on overseas credit card transactions and a 50% tax on overseas online purchases. The country is in recession and is expected to remain so, well into next year, as is its high inflation rate, currently running at over 25%.

Short-term, the Latin American country is facing a bigger threat emanating from its financial collapse at the turn of the century when it reneged on US$ 100 billion of sovereign loans and devalued the peso. Following two restructuring schemes in 2005 and 2010 the majority of bondholders accepted a 66% haircut on payments. However “vulture funds” – NML and Aurelius – bought some of the remaining distressed debt at a heavily discounted rate and now a New York  court has agreed that they should receive a US$ 1.5 billion down payment. This is in addition to a US$ 800 million interest payment due to the creditors who had settled previously.

In contrast to Argentine’s high inflation, the eurozone is concerned with the possibility of deflation as rates still hover around 0.5% – well below the 2.0% target. This figure is at its lowest level in almost six years – at that time, inter-bank lending almost ground to a halt, causing recession in the some of the bloc. The ECB has to stop the vicious downward spiral that can occur which may see falling demand, arrested growth, increased unemployment and reduced investment. The bank’s president, Mario Draghi, does not see too much improvement in the short-term and there is a possibility that a quantitive easing programme could be introduced that would mean an injection of cash into the economy and an upward movement in prices.

The French, keen to secure a stalled major defence order with India, are quick off the blocks and are proposing a US$ 1.4 billion soft 3-year loan for major infrastructure projects. Foreign Minister Laurent Fabius is the first of many overseas politicians trying to curry favour with the new Narendra Modi government. The French need every assistance to maintain its position as the second largest economy in the eurozone as all indicators point to the country lagging further and further behind its European partners.

In the US, both the Dow Jones Industrial Average and the S&P 500 are testing record levels with the former breaking through the 17000 mark for the first time ever. Meanwhile, the S&P is nearing the 2000 level – an all-time high. No doubt the US economy is in recovery mode as unemployment rates – at 6.5% – are at their lowest since the collapse of Lehman Brothers in September 2008. Undoubtedly, the market has been aided by low interest rates and economic stimulus measures but the times are changing. As the market is now heading for a major correction downwards, what we are seeing is the calm before the inevitable storm. As Dubai swelters in the summer heat, elsewhere A Hard Rain’s Gonna Fall!

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