Another Brick In The Wall

brick-in-wallThis week, HH Sheikh Mohammed bin Rashid Al Maktoum launched the Dubai Plan 2021 – a detailed roadmap outlining the emirate’s development over the next seven years. The six themes on the strategic agenda include:

·        a city of happy, creative and empowered people

·        an inclusive and cohesive society 

·        the preferred place to live, work and visit

·        a smart and sustainable city

·        a pivotal hub in the global economy

·        a pioneering and excellent government

Yet another Knights Frank report forecasts a 10% fall in Dubai prime realty in 2015, as the emirate slips to bottom of the ladder of eight cities surveyed. The fall would be even greater if it were not for the increased interest from Indian buyers. In the same vein, CBRE reported that villa prices have risen 7% this year compared to 24% a year earlier and expect the market to soften next year, as 20k new units come on to the market.

On the other hand, Global Property Guide reports that Dubai still remains at the top of its ranking of the world’s best performing property markets – for the 7th straight quarter. Q3 annual increases have softened to 23.7%, compared to Q1’s 31.6% and Q2’s 33.3%.

Cluttons also reported that prime office rents are heading northwards – up 25% for the year ended September 2014, as a supply of quality property falls short of demand.

The first phase of wasl’s foray into the freehold market has been sold out. The 43-storey Hyatt Regency Creek Heights Residences has a total of over 400 units  and is located adjacent to the 443-room hotel of the same name.

The World’s latest country to be developed is Sweden (part of the six-country Heart of Europe) with Kleindienst Group announcing a 10-vllla project, based on Viking history. The 7-bedroom villas will each have a sauna, private beach and personal pool and the island will have a floating restaurant, akin to Stockholm’s iconic Saluhall Market.

Action Hotels is paying US$ 15.7 million, to the Dubai government, for a 13k sq ft plot of land in Dubai Healthcare City. The developer is planning to build its first property in Dubai – a 240-key, 3-star hotel to cater for the increasing activity in this health free zone.

The recently launched property firm Muraba, headed by Ibrahim Al Ghurair, is going ahead with a 50-apartment building on Palm Jumeirah. The US$ 82 million development will have units starting at US$ 1.3 million, with 4 penthouses at US$ 6.8 million.

Al Ghurair Investments will open at least thirty new stores in the GCC, bringing its total to over 100. The Dubai-based retailer is expected to add two new fashion brands to its portfolio, as it strives to get a bigger share of the estimated US$ 240 billion GCC retail market.

It is reported that construction company, ALEC, will complete the US$ 1.1 billion Dubai International Airport expansion – including the new Concourse D – within four months. Testing is currently being held on the train system that will connect the renovated Terminal 1 with the new 340k sq mt concourse.

Apple is set to unveil its largest ever store next February – the new outlet in Mall of the Emirates will be bigger than its 23k sq ft flagship New York location.

Onetools has opened a US$ 4.1 million, 100k sq ft facility in Dubai Investment Park, as part of its strategy to double its revenue to US$ 82 million by 2015. The hardware and machinery distributor has 12 outlets in the country and a presence in Oman, Qatar and India.

Aramex announced that it had paid OneLogix Group US$ 16.5 million for the master franchise of the retailer, PoshNet – its second foray in South Africa following the 2011 purchase of the logistics firm, Berco Express. The printing and courier service company has 287 franchised stores in the country.

Dubai-based BR Shetty is looking to add a major stake in Travelex Holdings to his portfolio and has reportedly received financing of US$ 750 million to fund the acquisition. The Indian billionaire already has major interests in UAE Exchange, NMC Health plc and Neopharma.

Inkas Vehicles – one of four armoured vehicle manufacturers in Dubai Investment Park – is planning to spend US$ 15 million to expand its business. Currently, the four companies produce 1,600 units a year but all are trying to get a larger share of this market which is expected to be worth over US$ 28 billion over the next five years.

The US shoemaker – Skechers – is to invest around US$ 30 million, as it plans to triple the number of ME stores to 180, within three years. GCC revenue currently accounted for only 2.7% of the global total in 2013 but it is estimated that this will increase to 3.9% this year as sales jump to 2.5 million pairs of shoes, totalling US$ 95 million.

Dubai-based Middle East Development LLC has been awarded the contract to build the Al Noor Tower in Casablanca. The 540-metre, 114-storey building will become the tallest structure in Africa, currently held by the 223-metre Carlton Centre in Johannesburg, and should be completed by 2018. Whether this comes to fruition remains to be seen!

Drake & Scull has added a further US$ 22.5 million, to bring their 2014 total jobs procured to an impressive US$ 1.53 billion with the award of a health-care project in Abu Dhabi. The Dubai-based company has an international backlog of projects, totalling US$ 4.2 billion, which hopefully will boost their bottom line which, in Q3, was a disappointing US$ 6.9 million. (The company is also rumoured to be soon buying back 10% of its shares).

To the surprise of some, Dubai’s inflation rate fell to 4.15% – down from October’s 4.38% reading. The two drivers behind this are lower oil prices and the strong US$ which makes imports cheaper. According to latest IMF estimates, UAE GDP is expected to be 4.3% this year – down from 5.2% in 2013.

DEWA do not expect to have to return to the bond market next year as an increased number of projects will be activated and a US$ 1 billion loan has to be repaid in April. Currently, all Dubai electricity plants are run on gas but the long term plan will see some diversity, with the introduction of coal, nuclear and solar providing 12%, 12% and 5% of local power requirements.

The Dubai-owned Limitless is again looking at restructuring its debt by proposing to extend the loan tenure by a further two years to 2018, instead of 2016. The former property division of Dubai World may well sell a plot of land to raise funds to help repay a US$ 1.2 billion loan. The company is still suffering from the excesses of the emirate’s boom times and then found that they had taken on too much debt when the GFC hit.

DP World shareholders have approved the purchase of Economic Zones World from its majority 80.45% shareholder, Dubai World. The sale value of the logistics infrastructure company will be in the region of US$ 2.6 billion. DP World will also delist from the London Stock Exchange.

As Brent dropped to US$ 65 last Thursday, and the Dubai Financial Market tanked to close at 3595 (down 27.5% in three months), it was estimated that the Gulf equity markets had lost US$ 150 billion since the beginning of November. However, there seems to be a cushioning effect in the UAE as the local real estate sector is more mature and in a healthier position then it was when the lest recession came knocking in 2008. Furthermore the banks have far stronger balance sheets and the country has huge reserves which could allow budget deficits to be run without too much collateral damage.(At close of business on Thursday, 18 December, oil was trading a smidgen under US$ 60).

Whilst both total November bank assets and bank loans fell by 0.7% and 0.4%, to US$ 625.3 billion and US$ 374.9 billion respectively, bank deposits rose 0.4% to US$ 385.6 billion. Resident deposits accounted for 90.8% of this total, equivalent to US$ 350.1 billion.

On Sunday, the local market shed 7.6%, to 3321, its biggest one day fall in six years and also dropped to below its year opening level of 3371 points. By close on Wednesday, the market was in turmoil closing at 3033 but Thursday saw some reprieve with a 12.98% surge. 

Emaar, which has been battered over recent times, brought a little Christmas cheer to its investors by announcing it would pay the promised US$ 2.45 billion dividend on 23 December. It is little compensation that, over the past three months, the share value has fallen 35.4% from US$ 3.05 to Sunday’s US$ 1.97. As an aside, it is reported that there has been a major reshuffle in the Dubai company, with some senior managers moving to Abu Dhabi developer, Eagle Hills, of which Emaar chairman, Mohammed Alabbar, is a board member.

Although the local bourse had a shaky November, falling 9.4% to 4281, following a 9.9% slump in October, the market index has fallen 20.0% so far this month.  Having dropped a massive 16.1% the previous week, the DFMI was saved somewhat by Thursday’s bounce back but even then was 4.7% down from its Sunday opening of 3595 points, to close Thursday on 3427. Bellwether stocks, Emaar Properties and Arabtec, were down 6.1% and 13.8%, trading at US$ 1.85 and US$ 0.75 respectively.

In the US, the Claims Administrator, appointed by GM, has received 251 death claims and 2,072 injury claims in relation to ignition switch defects in their vehicles. It appears that at least 42 people have died and 58 injured as a result of these faults. The car manufacturer has already been fined US$ 35 million for not recalling vehicles earlier and has already set aside US$ 400 for future claims. Wheteher this is a big enough provision in such a litigious country remains to be seen.

Software malfunctions and malpractice were in the news this week and the need for tighter security highlighted. A glitch with RepricerExpress, designed to automatically reprice items to make them cheaper than competitors, saw some products on Amazon being sold for 1p. Amazon did not lose out but its sellers were left counting the cost, with some reporting losses that could result in bankruptcy.

Despite warnings in August, a computer problem at NATS control centre saw massive travel disruption as more than 300 flights into London airports were cancelled. The air traffic control centre blamed an unprecedented systems failure.

 Hackers – that may be linked with North Korea – have managed to carry out a cyber-attack on Sony Pictures. The end result is that at least five unreleased films have emerged online, scripts – including the latest Bond film, Spectre – have been stolen and thousands of embarrassing documents have been made public.

Even the UAE telecom provider, Etisalat, did not escape as its main commercial website was defaced on Thursday.

Fitch has downgraded France to AA credit rating as the Gallic country struggles to reduce its budget deficit of 4.1%, in line with the EC target of 3.0%. The credit agency considers some of the assumptions of the 2015 budget to be slightly exaggerated, including government debt to GDP being higher than 100% and uncertainty on inflation and actual GDP growth estimates.

Italy has seen major strikes as unions rebel against long-needed labour legislation which is badly needed, as the country tries to escape from years of recession to reduce its huge debt.  Europe’s 4th largest economy is reeling from the fact that 43% of its under 25s are unemployed. 

Another struggling EU economy, Belgium plans to save US$ 14 billion in cost cutting measures. These have not been well received by the unions, as they hit the country with a crippling nationwide strike this week. In an austerity drive to boost the economy, PM Charles Michel wants to scrap the annual cost of living wage rises, increase the retirement age to 67 and to slash public spending.

Yannis Stournaras, head of the Central Bank, has indicated that there will be further economic turmoil in Greece if there is no speedy settlement of the current political crisis.  Even though the country has just come out of a six-year recession, its economy is still only 75% of the size it was in 2008 and if political uncertainty continues, Greece could see another downturn

Australia has been hit by a larger than expected drop in its terms of trade, exacerbated by weak wage growth and major reductions in commodity prices, especially iron ore and coal. Accordingly, its budget deficit forecast for this year has surged 35.6% to US$ 33.2 billion – up from May’s figure of US$ 24.5 billion. The end result is that the 1.5% GDP growth this year will be the weakest in fifty years.

Following October’s bi-lateral free trade agreement, China has wasted no time in buying up John Holland, one of Australia’s largest construction companies.China Communications Construction International (CCCI) will buy the Leighton Holdings building unit for US$ 950 million.How times have changed! Only a year ago, analysts were singing the praises of the BRIC bloc – four countries that were going to set the financial world alight. Now they all seem to be on a lippery slide.

Corruption seems to be endemic in Brazil with 35 executives, from six large construction companies, being charged for channelling kickbacks into a Petrobas scheme to pay off politicians. To make matters worse, President Dilma Rousseff was on the state-run oil company’s board for seven years and some of the illegal monies have been directed to her ruling Worker’s Party. Furthermore the facts that the country recorded a meagre Q3 0.1% growth, following two quarters of contraction, and the real sank to a nine-year low, indicate why Standard & Poor’s have reduced Latin America’s largest economy to one notch above junk status.

The Russian currency goes from bad to worse with the central bank hoisting its key interest rate from 10.5% to 17%. The rouble has lost 87% of its value to the US$ over the past year, trading on Thursday at 62. Earlier in the week it had sank as low as 79, but despite this temporary boost, there is no apparent end to the crisis in sight. The US$ 100 billion + spent, trying to bolster the currency, has been an abject failure.

India has recorded mixed November economic data as industrial output contracted by 4.2% and the 4.4% inflation figure fell to three year lows -well down on the RBI’s 8.0% target. Following two years of under 5% growth, the country saw Q3 expansion of 5.3% but this was much lower than Q2 returns. It seems certain that the RBI governor, Raghuram Rajan, will be pushing for a reduction of the 8.0% borrowing rate in a bid to add impetus to consumer spending and investment.

The latest HSBC/Markit Manufacturing PMI proved bad news for China with a recording of 49.5 – down from November’s 50.3. (Any reading below 50 indicates an economic contraction). There is now inevitability that the country will see growth below 7.5% for the first time since 1999 – and may even struggle to record 7.0%. This slowdown – allied with a property bubble ready to burst – could spell even worse news for the global economy in 2015.

There is no doubt that like most other economies the BRIC nations are off the economic pace. There is an urgent need for Brazil, Russia, India and China to lift their game and strengthen their softening economies. No doubt they will need a lot more than Another Brick In The Wall!

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