No Shelter From The Storm

dubai-sandA recent bullish report by the influential Oxford Business Group indicates that Dubai is set for steady growth over the next two years. The study Indicated that investment in five sectors – capital markets, maritime, transport, real estate and retail – will be the main drivers as the emirate moves into a new growth phase. Investor interest will be further strengthened as Dubai plans to introduce PPP (public private partnerships) in many areas.

As usual, there are conflicting reports on the state of the local real estate sector.  Most agree that prices are falling but it is difficult to ascertain by how much and impossible to estimate for how long. The reality is that there is not enough stock coming online to meet current demand and it will be at least another 18 months before any sort of equilibrium is reached. The market will soften over the summer months but will return to normality in Q4 – unless external factors dictate otherwise. 

Having stopped building at the height of the 2008 property crash, Tanmiyat Global has announced that all 500 villas and 67% of the units in its 12 apartment towers have been sold. The US$ 1.9 billion, 14.4 million sq ft, Living Legends development will see 150 villas handed over in Q4 whilst the balance, as well as a 9-hole golf course, hotel, schools and shopping mall, will be added later.

The Cayan Group and Shuaa Capital have tied up to establish a US$ 272 million fund to develop a residential and hotel apartment project on Umm Suqeim Road, due for completion within three years. The Saudi developer, who built the world’s tallest twisted building, the 307 mt Cayan Tower in JBR, will be the main developer whilst the Dubai-based Shuaa will act as investment manager.

The hospitality returns continued to soften into February with falls in room yields (1.3%), yields (5.6%) and occupancy (2.3%), as average room rates stood at US$ 275. Dubai currently has an inventory of 64.2k rooms with an expected 42% increase to 91.2k over the next four years.

Indian hotels are beginning to regain their feel for the Dubai market. The Taj opened its second hotel – a 296-key property in Deira – 14 years after opening here. Mumbai-based Hiranandani Group is planning a 2017 opening for an Accor hotel in Business Bay whilst Suba opened a 4-star property in Deira last year and expects to open a second near the new airport. Interestingly, 809k Indians make up the largest nationality group passing through Dubai International, and the emirate’s second largest source market for visitors.

Emaar has a Saturday sales launch for Downtown Views – a 55-story tower – comprising 418 apartments. The development will be connected, by a travellator, with Dubai Mall and the Metro. 

This week saw the Al Barari launch of The Nest – a 99 villa project. Prices for the four-bedroom residences will start at US$ 2.1 million and will probably be that estate’s final residences to be built.

Dubai Properties announced that all 120 4-bedroom townhouses in its Mudon development have been sold. Hand-overs for phase 1, the 72-townhouse Al Salam, and phase 2, Al Nassem with 112 units, started in January.

Al Shafar General Contracting Co has won a US$ 133 million contract to build Dubai’s Union Museum.

Arabtec has confirmed that a deal has now been reached with Egyptian authorities to start work on the US$ 40 billion project to construct one million homes. Phase 1 will see 100k units being built in Badr and Obour on the outskirts of Cairo.

Union Properties is looking at a US$ 191 million local bank facility to finance upcoming projects.

MAF has announced that it plans to expand its Carrefour outlets into Africa. The Dubai-based conglomerate will open a supermarket in Nairobi in Q4 and expects to double the number of stores over the next five years. The company will soon be opening its Mall of Egypt – covering 163 sq mt, with 400 shops. On the local front, MAF estimates that it has 24% of the 3 million sq ft of planned retail currently in the Dubai pipeline and, this week, announced a Carrefour hypermarket for Dubailand.

A lot of money has been spent on upgrading Dubai International. The new US$ 517 million Concourse D, due to open in Q3, will manage 100 airlines that presently use Concourse C. The facility, with 21 contact and 4 remote stands, will also feature open gates which will allow passengers to board directly from the waiting areas. A further US$ 490 million is being spent on refurbishing Terminal 1 whilst upgrading Terminal 2 will cost US$ 163 million.

Meanwhile Dubai International reported a 5.3% increase in February’s passenger traffic to 5.97 million, despite a marked 35.6% reduction in numbers from Russia and the CIS states. Cargo traffic increased by 1.2% to 191k tonnes, with much of this freight being moved to the new Dubai World Central.

The Canadian Fairview Container Terminal in British Columbia has been bought by DP World for US$ 457 million and will become the Dubai port operator’s second operation in that country, following the Centrem Terminal in Vancouver.

It is reported that there is a new chairman at Drydocks World with the DG of Dubai’s Department of Finance, Abdulrahman Al Saleh, taking over from Khamis Buamim, who had been in the post for nearly five years.

The London Sunday Times reports that Rory Mcllroy has left Monaco to become a Dubai resident. It appears that he will live on Palm Jumeirah but will still pay 12.5% Irish corporate tax on his royalty payments, whilst other income could become tax free.

Lionsgate, responsible for The Hunger Games franchise, has teamed up with Dubai Parks and Resorts to open a dedicated zone at the upcoming motiongate theme park. Opening in Q4 2016, it will feature both related theme park attractions and retail and will form part of the 25 million sq ft, US$ 2.86 billion project.

The Dubai Investment Development Agency reported that 2014 foreign direct investment into the emirate stood at US$ 7.8 billion. 83.6% of business, totalling US$ 6.5 billion, emanated from six countries – US, UK, India, Netherlands, Germany and Italy. Real estate, financial services, hotels and tourism, alternative/renewable energy, business services and IT services accounted for 76.9% – US$ 6.0 billion – of the total.

It seems that plans to allow 100% foreign investment in certain sectors for on-shore companies are progressing. Currently the law is that at least 51% of the shareholding in a limited liability company has to be held by a local, whilst off-shore companies are allowed 100% foreign ownership.

VAT could be a step closer for Dubai and GCC residents as authorities have agreed a general framework for its introduction which will be on the May agenda of a meeting of Ministers of Finance and Economy. The possible rate has yet to be finalised but could be around 5%.

A survey by TNS, the largest global custom market research entity, concluded what the majority of customers already know – there has been a weakening in banks’ client dealings. It concluded that customer expectations were not being met and they are reluctant to recommend any banks. Perhaps these financial institutions could pay their junior staff more and spend some of their profits on proper training.

The Commercial Bank of Dubai is spending US$ 817 million buying UAE company loans from the Royal Bank of Scotland. This comes as the 79% UK-government owned bank is moving out of the MENA region to focus more on its domestic market.

Credit Suisse has amended its grading for UAE equity markets from neutral to overweight. The banks’ analysts indicated that shares’ annual forward earnings estimates were discounted 35%, compared to the MSCI World Index.

Dubai Islamic Bank, 86.5% owners of Tamweel, has made a US$ 0.34 per share offer to buy the remaining balance. With the realty sector continuing to weaken, the bank may be regretting not buying these two years ago when it acquired the majority shareholding in the Sharia-compliant mortgage lender.

The DFMI started the week trading on Sunday at 3407 and, after a slow start, jumped 6.1% to close at 3615 on Thursday, but still 4.2% lower than its January opening of 3774. Bellwether stocks, Emaar Properties and Arabtec, were both up – by US$ 0.17 and US$ 0.06 – to US$ 1.92 and US$ 0.66 respectively. On Thursday, 565.3 million shares, valued at US$ 228.7 million, were traded.

Many of the Q1 indicators were down on their January opening, with, among commodities, only cotton and silver heading north whilst the London and Sydney bourses did likewise.

 

 

Curr

Unit

01 Jan 15

01 Jan 14

%age

 

31 Mar 15

%age

 

 

 

 

 

 

2014

 

 

2015

Iron Ore

 

US$

lb

73

135

-45.93%

 

63

-8.63%

Rouble

 

US$

 

0.017

0.030

-43.33%

 

0.017

0%

Oil – Brent

 

US$

Barrel

57.33

102.5

-44.07%

 

54.93

-4.19%

Coffee

 

US$

lb

161

260

-38.08%

 

134

-16.77%

Cotton

 

US$

lb

62

86

-27.91%

 

83

33.87%

Silver

 

US$

oz

15.77

20.15

-21.74%

 

16.62

5.39%

Copper

 

US$

lb

2.88

3.37

-14.54%

 

2.75

-4.51%

AUD

 

US$

 

0.81

0.89

-8.99%

 

0.76

-6.17%

GBP

 

US$

 

1.53

1.64

-6.71%

 

1.48

-3.27%

Euro

 

US$

 

1.21

1.38

-8.77%

 

1.08

-10.74%

Gold

 

US$

oz

1,186

1,236

-4.05%

 

1,182

-0.34%

FTSE 100

 

 

 

6548

6730

-2.70%

 

6772

3.40%

 

CS1300

 

 

 

3532

2291

54.17%

 

3480

-1.47%

S&P 500

 

 

 

2091

1831

14.20%

 

1990

-4.83%

DFMI

 

 

 

3774

3370

11.99%

 

3600

-4.61%

ASX All Ord

 

 

 

5415

5352

1.18%

 

5450

0.06%

The top 200 Australian companies saw their H1 profits (to December 2014) sink 26.0% to US$ 19.5 billion as revenues nudged 0.2% higher to US$ 226.6 billion. The February inflation rate of 1.5% is well down on the RBA’s target of 2% – 3%, as the economy remains sluggish, despite the housing bubble.

As some commodity prices slump to new record lows, it will be no surprise to see Australian interest rates cut 25bp to 2.0% sometime in April. Analysts had expected the dollar to fall in tandem with commodity prices but as this has not happened, the RBA could be forced to help out sooner than expected. The flip side of the coin is that lower rates will encourage more speculation in the country’s property market, especially in Sydney where prices rose 3% last month.

Following a 12-month run of posting monthly growth of over 200k jobs, reality set in as the US recorded a disappointing 126k figure for March, with the unemployment rate remaining steady at 5.5%. In March only 62.7% of eligible Americans were actually working or looking for employment – its lowest rate since 1978. Such returns may see a delay in the Fed hiking interest rates.

Just as the UK revised their Q4 growth figures upwards to 2.8%, its highest level in nine years, reports indicated that labour productivity in the country fell 0.2% and, at this level, it is still below 2007 figures. Furthermore, unit labour costs have only risen 1% over the past five years. The disappointing productivity data, along with business underinvestment, may point to the reason why the economy is carrying 1.5% slack. Without a productivity recovery, there will be no marked boost in earnings, tax revenues will remain flat and the government will struggle to reduce the record current account deficit of US$ 37.4 billion.

Former EC president, Jose Manuel Barroso is the latest to attack the efforts of the Greek government in trying to sort out their economic malaise. He accused the Syriza administration of “making completely unrealistic promises” and that its demands were “completely unacceptable to other countries”. Despite a promise to crack down on tax evasion and fraud, it still wants to spend more on raising the minimum wage and increasing pension payments. With the distinct possibility of a sovereign debt default, Fitch dropped the Hellenic country’s credit rating two notches from B to CCC.

On Thursday, Dubai experienced its worst sandstorm for many years but by next day it had cleared. Greece will not be as lucky as its economic time is fast running out and its troubles will not blow away; the country can find No Shelter From The Storm.

Advertisements
This entry was posted in Finance and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s