Forever and Ever

Demis-RussousGreece hit the international headlines this week with news of the death of one of its main exports, Demis Roussos, and locally that Greece was one of more than 150 Dubai projects cancelled, according to the Dubai Courts website. The Hellenic development was to include 65 luxury residences on the proposed 485k sq ft island on Nakheel’s The World project.

Of the other cancellations, two Khyool Investment ventures (Abjar Tower and Faras 2), have already been liquidated, 17 projects of Reliance Real Estate Development are currently subject of a RERA committee hearing and a further 34 have almost been cleared, to the stage of moneys being returned to investors. The remainder is still outstanding with the notable casualty being the 16-storey Rotating Residence in Jumeirah Village, which was due for completion over six years ago!

It is well-nigh impossible to forecast what is going to happen in the realty sector as another week sees another housing forecast, with different findings. This time, JLL expects a 10% fall in house prices (after a two-year 56% rise) and a similar decrease in rents.

Dubai Properties report that 9% of the total construction work of its US$ 218 million Dubai Wharf project has already been completed.

Dubai Municipality confirmed that it would be in a position to totally finance the proposed US$ 8.2 billion Desert Rose project. On completion, by 2025 at the latest, the sustainable city, located south of Emirates Road, will have 30k units and be home to 120k nationals and 40k expatriates. 10k units will be affordable housing for expatriates.

It seems as if the launch of the 700-unit Millennium Square in Meydan City has started well with reports that one unnamed investor has already put down US$ 150 million for 125 units. G&Co will start work on phase 1 of the US$ 409 million development in Q3, comprising 210 villas, with starting prices at US$ 1.2 million.

Union Properties has started work on phase 3, covering 1.48 million sq ft, of its Green Community development. The US$ 185 million 227-villa project should be completed by early 2017 and will bring the total number of residences there to 1,782.

Nakheel has announced massive plans for 80 new buildings near to its Dubai Waterfront site, with the building of 4k new apartments to be started shortly. The original concept was for a huge beachfront city, with a population of 400k but this was put on hold as the GFC scuppered many of Dubai’s grand plans.

A subsidiary of Drake & Scull, Gulf Technical Construction, has secured a tender to build a 38-storey tower for Reef Real Estate. Reef Towers will host 378 units and will be located adjacent to the Els Golf Club.  Another subsidiary has secured a US$ 54 million MEP contract for an unnamed 5-tower hotel and apartment complex, already under construction in the emirate.

Target Engineering – 98% owned by Arabtec – won two more Abu Dhabi contracts worth US$ 153 million. An ADNOC tender for building a housing complex in Ruwais was valued at US$ 94 million whilst the other successful bid was from ADCO, for a new management building.

The 40th Arab Health and Congress opened this week with 4k exhibitors and 125k trade visitors  – a huge boost to the local economy. It has been estimated that UAE consumers spend some US$ 780 million on medical-related products, expected to increase by 9.8% this year. The 4-day exhibition, one of the largest of its kind in the world, highlights the fact that Dubai is becoming a major hub for medical tourism.

As the number of Russian visitors tumble, the vacuum is being filled by the Chinese, with 2014 numbers showing a 25% year on year increase to 276k.

Despite the absence of many Russian tourists, due to their economic and currency problems, this year’s Dubai Shopping Festival looks set to break all records when it closes on Sunday. Early figures indicate an 18% jump in shopping mall footfall and retail sales are set to show at least a 5% increase.

According to Issam Kazim, the chief executive of Dubai Corporation for Tourism and Commerce Marketing, Dubai hotels will have an additional 20k rooms within the next two years; this will increase the inventory by 22.2% to 110k, with an estimated 45k rooms being added in the three years leading up to Expo 2020. This number should be able to cope with the expected 20 million visitors at that time.

Accor has just opened its second Dubai Pullman brand hotel in JLT – a 35-storey tower with 296 rooms and 58 serviced apartments.

Two Dubai properties make Trip Adviser’s latest listing of the top 25 global destinations, based on travellers’ reviews. Emirates’ desert location, Al Maha, comes in 8th whilst Dar Al Masyaf at Madinat Jumeirah makes a creditable 13th.

Year-end results show that Dubai is the busiest international airport in the world, replacing Heathrow in top spot. In 2014, the facility handled 70.5 million passengers – 6.1% more than in the previous year – and expects an even bigger increase of 8.9% this year. These figures are even more impressive considering the partial 80-day closure for runway maintenance in Q2. 

With the transfer of freight operations to the new Dubai World Central, it came as no surprise to see a slight fall in freight volumes to 2.37 million tonnes – a 3.1% drop. Overall both Dubai airports recorded more than 2.4 million tonnes, making it the 3rd busiest in the world after Hong Kong (4.3 million tonnes) and Seoul (2.46 million tonnes).

Emirates reportedly pay Real Madrid an annual US$ 34 million in a 5-year shirt sponsorship. Now the Spanish club may rename its Santiago Bernabéu stadium Abu Dhabi Bernabéu, in a deal with the Abu Dhabi government fund, International Petroleum Investment Co.

Local consumer confidence is exemplified by recent figures from Christie’s, the Department of Economic Development, Audi and Renault. The London auction house reported increased business activity with 2014 Dubai auction revenue surging 59% to US$ 46 million. Meanwhile DED recorded a 13.3% increase in the number of licences issued in 2013 to 21.4k, with the number of LLCs increasing by 17.1% to 14.7k.

Al Nabooda Automobiles has reported a 13.6% rise in Audi sales to 3.0k whilst Renault sales jumped an impressive 44% to 3.7k in 2014.  Al Nabooda is currently building a US$ 36 million workshop in Dubai and also a US$ 70 million pre delivery centre in Jebel Ali. If these figures are anything to go by, the local auto sector is in rude health.

It is no surprise to see that the multi-faceted Dubai public transport system had a 20.7% surge in passengers in 2014 to 531 million, which equates to 1.47 million users a day. The importance of the transport system can be gleaned from the fact that its usage has risen from 6% in 2006, to 14% last year with estimates indicating a rise to 20% by 2020. In 2014, Metro users jumped 19.3% to 164.3 million whilst taxi, bus and marine transit saw 108.9 million, 91.9 million and 13.3 million passengers respectively.

Although Expo 2020 is still five years away, a JV, between CH2M Hill – Mace, has already been appointed to manage the delivery of all construction-related services for the 438-hectare site. The US/UK partnership comes with excellent credentials, having already had a major input into the success of the London 2012 Olympics, and both entities have had local exposure with projects such as JBR, MoE and Masdar City. 

The year-end reporting season is in full swing with Majid Al Futtaim announcing a 11.0% jump in revenue to US$ 6.8 billion with an operating profit of US$ 980 million. The company’s total assets were valued at more than US$ 12.3 billion, with plans for a doubling in size over the next five years.

Dubai Islamic Bank followed the same trend as other local banks when it announced impressive Q4 figures, showing a 64.1% rise in net profit to US$ 232 million, on top of a 63.2% rise in annual revenue to US$ 763 million. Meanwhile, Deyaar Development, 45% owned by Dubai Islamic Bank, reported a 50.0% jump in 2014 profit to US$ 63 million.

Emirates REIT, the Dubai-based Islamic real estate investment trust, announced that 2014 net profit rose 39.3% to US$ 48.6 million. Total assets jumped almost 80% to US$ 599 million, comprising seven properties, including its biggest acquisition made in June last year – 67% of the floor area and 700+ parking spaces in DIFC’s Index Tower.

Union Properties did not fare as well with disappointing 2014 figures. A 55.8% fall in revenue, to US$ 561 million, saw the Dubai developer coming in with a reduced 45.7% bottom line of US$ 234 million. Its share price on Thursday was lower at US$ 0.29.

The regulatory authorities have approved Aabar Investment’s option plan to purchase a further 100 million Arabtec shares to bring its holding to 37.27%.

It is reported that Emaar Properties is planning to hive off Emaar Misr, its Egyptian division, in a US$ 270 million flotation. Although smaller than its last September US$ 1.58 billion Dubai bourse IPO (for 15.4% of its Malls Group), it will be the largest seen on the Cairo exchange since 2007.

Some of the recent IPOs still need time to find their feet with the following down on their original opening prices: Damac – 37% at US$ 0.49, Dubai Parks & Resorts – 29% at US$ 0.19, Amanat – 20% at US$ 0.22 and Emaar Malls – 4% at US$ 0.76. Liquidity still seems a problem with this Thursday trading volume of 273.6 million shares, totalling US$ 130 million.

The DFMI started the week trading on Sunday at 3883 and fell 5.4% to close at 3674 on Thursday (2.6% lower from its January opening of 3774). Bellwether stocks, Emaar Properties and Arabtec, were trading at US$ 1.83 and US$ 0.79 – down 10.3% and 3.7%, in turn, on the week.

Largely as a result of the phenomenal success of iPhone 6/6Plus, launched last September, and subsequent sale of 74.5 million units, Apple announced a record US$ 18 billion profit in Q4. Sales and profit were 116% and 77% higher, quarter on quarter. As 60% of Apple’s profits are structured through three Irish-based companies, where the so-called “Double Irish” procedure results in much lower tax liabilities, the question is should it be paying more?

Mark Carney, the Bank of England Governor, has weighed into the debate about certain international companies minimising their tax obligations. Like many others in Davos earlier in the week, he considers that many of the large companies – especially tech – take advantage of international tax deals. It is time that tax rules are updated, simplified and become more transparent and that governments come up with a unified tax system.

Two UK companies are in talks about possible acquisitions, the largest of which involves O2. Li Ka-shing’s Hutchinson Whampoa has reportedly offered US$ 15.4 billion for the UK’s second largest mobile provider (after Vodaphone). As Asia’s richest person, he already owns the Three network which has 12% of the UK market and, if successful, he will then control 41% of market share compared to Vodaphone’s 23%. Whether the competition watchdogs – in both the UK and EU – would allow such dominance in this sector remains to be seen.

Meanwhile IAG, the parent company of British Airways, has made its third – and a much improved offer – of US$ 2.85 per share to take over Air Lingus. The two major shareholders, who will have to agree to the sale are Ryanair (30%) and the Irish government (25%) which would value the airline at US$ 1.45 billion. (At that price, Etihad, as a 4.1% shareholder, could see a US$ 60 million windfall).

Russian business confidence took a further two hits this week. S&P slashed its credit rating to BB+; the junk status rating will make loans more expensive and more difficult to obtain. The double whammy effect of low oil prices and international trade sanctions will ensure that the economy will contract by at least 5% this year, as the government is expected to pump in US$ 35 billion to keep the economy afloat. As a result, the rouble fell again this week and closed Thursday on 68.8 to the US$.

It is reported that the Chinese government will announce a 2015 7.0% growth forecast – its lowest since 2004. This could be the year that China takes stock of the situation by cutting growth so that it can introduce much needed economic and structural reforms to better manage such an unwieldy economy. Last year, it was estimated that such continuous rapid growth led to unnecessary over investment in some sectors, costing the country US$ 7 trillion! There is also some worry of deflation, as last year’s 2.0% consumer price rise was well below the 3.5% target.

By the end of 2014, China had become the 5th most widely used payments, moving up eight places over the past two years: with a 2.2% share of the market it is behind the US$ (44.6%), euro (28.3%), sterling (7.9%) and the yen (2.7%).

The economic flavour of this month has to be gold largely because of the uncertainty of most central banks on how to deal with deflation and to boost sagging economies. The yellow metal started the year at US$ 1,186 and closed the month on US$ 1,277 – a jump of 7.7%. It is unlikely to have too many months like January.

The main aim of last week’s eurozone’s QE announcement was to encourage borrowing, which in turn will boost spending, by increasing the supply of money that theoretically keeps interest rates low. To date, the historically low rates have failed to ignite growth in the 19-country bloc. The twin negative impact of low growth and high unemployment is a conundrum that needs to be solved. Current policies seem certain not to meet the challenge because a complete overhaul  is needed but there is a lack of the political for it to be carried out.

Singapore joined a host of other countries, including Canada, Denmark, India, South Africa and Turkey, who have begun a currency war. Their use of monetary policy is an attempt to reverse an economic slowdown, whilst supporting growth and inflation. In short, it has made its dollar weaker against other currencies, and against the greenback it fell to its lowest level in almost five years, having slipped 6% over the past three months. When the dust settles, there is unlikely to be many winners in this currency war.

Germany led the eurozone in warning the incoming Greek government that it expects Alexis Tsipras to meet the country’s commitments and pay off any outstanding debts, as well as to carry on its much criticised austerity programme. The incoming Syriza Party has completely opposite ideas – to renegotiate the US$ 270 billion debt and to scrap austerity measures. No wonder the bureaucrats are worried – with the euro hitting 11-year lows and stock markets (particularly banks) falling – as the eurozone, and the euro, face collapse. The two extreme outcomes are that Germany will back down – and sanctions a debt write-off with the ensuing contagion moving to other precarious economies such as Italy and Portugal – or they do not and then it will see Greece depart the euro…. but not Forever and Ever.

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