Forever Blowing Bubbles!

omniyat-oneThere is one major problem with Dubai’s most expensive penthouse at US$ 49.3 million – it has yet to be built! However, a contract will soon be awarded by the developer, Omniyat, to build the One at Palm Jumeirah. With an internal area of 25k sq ft, including 8 bathrooms and 7 bedrooms, plus a 16.6k sq ft terrace, along with interior design by Japan’s Super Potato, it will be ready in Q1 2018.

As the residential market continues to stabilise, CBRE estimate that prices have fallen 6% over the past year – and 2% in Q2. The firm indicated that it expects up to 20k new units this year – and a total of 62k (of which 50.2k will be apartments), coming on stream over the next three years.

Despite all the doom and gloom surrounding the real estate market, it is interesting to note that the UAE was ranked 2nd globally for residential investment, based on CBRE’s criteria of market recovery and economic growth. In an upbeat tone, the firm considered Dubai a good buying opportunity, as it expects a 2016 rebound and strong growth potential going towards Expo 2020. However, in the past year, total Dubai property sales have fallen 19.8% to US$ 8.65 billion.

Asteco’s latest report has some interesting findings indicating recent increases in prices of more affordable properties including Discovery Gardens (6%), IMPZ (3%) and Silicon Oasis (2%). At the other end of scale, there were annual declines of around 10% noted in Dubai Marina, JBR and Palm Jumeirah. The company expects further softening in the sector as an expected 7k units will be ready this year and 13k apartments will hit the market in 2016.

Meanwhile, the report forecasts that of the 65k units, currently under construction, 29k will be handed over in the next 18 months. The current supply chain will see both dips in prices and rentals until some sort of equilibrium is reached before Expo 2020 – but Dubai will not see another 2008 crash.

Over the past month, there would have been at least ten industry reports, all with apparently different findings – both on the supply and demand sides. The average man in the street is left baffled with the diverse range of conclusions and continues, by and large to rely on hearsay.

As with housing data, there seems to be no certainty on the number of hotel rooms in the pipeline and what would be the optimum number. Khalaf Al Habtoor has urged a note of caution as the emirate heads towards Expo 2020. He is concerned that if too many rooms are added to the portfolio, then there could be major problems with over-supply and a distinct possibility of bankruptcies. The current stock of rooms is about 65k, with estimates of a further 30k to 65k required before 2020. Simple arithmetic tells you that if the plan is to increase the number of visitors by 60% to 20 million, then a further 39k rooms are required; if the number was to be 25 million, then an extra 65k rooms would be needed.

Following a raft of new projects last week, prior to the opening of Cityscape Global on Tuesday, Dubai Investments announced its Mirdif Hills development, slated for completion by 2018. The project will include 1.5k apartments and a hotel.

As expected, DMCC revealed its plans for the Burj 2020 District which will cover over 1 million sq mt, with its focal point being the world’s tallest commercial tower. It is expected that at least 100k sq mt will be used for retail space.

Nakheel is planning a 1.5km Palm Promenade to stretch the entire trunk of Palm Jumeirah; the walkway will connect all thirty apartment towers with Al Ittihad Park, the beach and outlets.

In a bid to entice interest in The Villages project, located in Dubai South, Dubai Properties is to introduce a rent-to-own scheme. The US$ 6.8 billion development will be split into five different locations, with a total of some 20k residential units. Construction is expected to start in Q1 next year and be completed by 2019.

It appears that one-bedroom apartments in Al Habtoor City will sell for between US$ 817k and US$ 1.36 million. It is estimated that the project will cost in the region of US$ 545 million and will have three luxury hotels – St Regis, W and Westin – within the vicinity.

Saudi developer, Tanmiyat Global has released details of its 34-storey Skyline twin towers to be built in Dubailand. The 750 residential and hotel apartments, as well as 150 outlets, will be phase 1 of its Living Legends project and should be completed by 2018. The company had even grander plans, when it first launched in 2007, but hit problems with the arrival of GFC.

It seems that the US$ 6.8 billion Mall of the World project is in the throes of redevelopment and is still viable. The mega mall, to be located on the current Police Academy site, will cover an area of 8 million sq ft and will include three urban malls, 20k hotel rooms and the world’s largest theme park, tobe covered by a glass dome.

It is reported that the Investment Corp of Dubai is looking at a US$ 500 million loan facility to finance the expansion of Atlantis, The Palm. The new Royal Atlantis Resort and Residences is expected to cost US$ 1.4 billion and will include a 800-key hotel and 250 luxury residences.

Subsequent to its May agreement with the Spanish RIU Hotels & Resorts for a 750-key hotel, Nakheel has signed another JV with Thailand’s Minor Hotel Group to build a 500-room property on Deira Islands. The developer is currently negotiating with other interested parties for more hotels on the 15.3 sq km beachfront location. Following last year’s agreement with Premier Inn to build a 372-key hotel at Ibn Battuta Mall, Nakheel is to build a second one. Located in Dragon City, the 250-room property will be completed by 2018.

Deyaar has also signed a MoU with Millennium & Copthorne Hotels to develop and operate hotels in Dubai and the region. Initially, the aim is for the introduction of 1k rooms. The Dubai-based developer already has three hospitality projects in Dubai.

Last month, it was revealed that Bentley would be responsible for the interior furnishings for Sweden Island on The World Islands. Now Damac has acquired the services of a luxury car maker with the launch of its ETTORE 971 Bugatti Styled Villas in its 55 million sq ft Akoya Oxygen development. The 7-bedroom villas will have a starting price of US$ 9.8 million.

Tecom’s expansion plans continue unabated with a further 2 million sq ft being added before year end, including 11 towers in Dubai Design District and a further three in International Media Production Zone. Its 1.8 million sq ft “Innovation Hub” will open in Q1 2017. The current number of 4.7k companies, employing 74K, is set to increase.

Despite an agreement signed last year for the construction of one million homes in Egypt, it seems that the country’s Housing Minister Moustafa Madbouly has decided on the building of only 100k units over the next five years. The initial Arabtec agreement put the project cost at US$ 40 billion.

Azizi Holdings has indicated that it faces no problems in financing its current 20 Dubai projects, valued at US$ 1.23 billion. Of that total, 17 are located in Al Furjan – the 8 residential blocks are in progress whilst 4 of the 9 hotel / hotel apartment towers will soon break ground. The Group hopes to have 1k rooms under management within four years, including a 400-key 5 star US$ 300 million property in Dubai Healthcare City and a smaller US$ 200 million hotel on Palm Jumeirah Crescent.

The Dubai International Financial Centre continues to expand with the number of companies in H1 increasing by 8.3% to over 1.3k and a 4.8% hike in employee numbers to 18.5k. During the period, work started on The Gate District’s 11th office building and a further 178k sq ft of commercial space was leased.

In Q1, Dubai received 119k medical tourists and has plans to push the annual number up to 500k by 2020. Currently, this sector contributes 0.26% to the emirate’s GDP and a look at past figures indicates the great strides being made. In 2012, the 107k patients generated revenue of US$ 178 million – the 260k in H1 added US$ 272 million. According to the Medical Tourism Destination Index, Dubai is ranked 17th in the world for medical tourism.

It is reported that Dubai Islamic Bank is planning a Q1 IPO on the Karachi bourse to sell 25% of its shareholding in its Pakistani arm of the bank. In Q2, the bank made a US$ 104 million profit – down 49.0% on the comparative 2014 period – and carried assets valued at US$ 1.2 billion at 30 June 2015.

The Dubai-based pay-TV company OSN, owned by Kuwait Projects Company and the Saudi Mawarid Group, has raised a US$ 400 million, 5-year loan to fund further expansion plans. It operates paid subscription TV services in the MENA region.

The World Bank has forecast that the UAE will return to a 0.2% budget surplus (and 1.5% in 2017) following a 2.9% deficit this year, due to the crash in oil prices. The improvement will be largely as a result of increased emphasis to boost the non-oil sectors, significant cuts in public spending programs and implementing a tax regime.

According to a Ministry of Justice official, corporate tax is on the radar, with discussions currently taking place with local governments and with GCC members about a coordinated approach to VAT. The IMF has suggested a widening of the current 10% selective corporate tax net to catch more companies, as well as the introduction of a 15% duty on motor vehicles. (A rough calculation of a US$ 50 reduction in the oil price – and assuming that the UAE’s production is 2.8 million bpd – sees the country “lose” US$ 140 million daily or US$ 36.5 billion a year). The 7.4% contribution to the non-hydrocarbon domestic product that the IMF calculates that tax would generate would go some way to offset the current oil deficit.

There are reports that Al Shafar General Contracting is planning to list on the DFM. The co-founders of the Dubai-based company, established in 1989, are Mohamed Seif Bin Shafar and Egyptian national, Emad Azmy.

It was a flat week on the DFM, opening Sunday at 3648 to eventually close 0.7% lower at 3621 by Thursday (10 September). Of the bellwether stocks, Emaar Properties lost ground, dropping US$ 0.01 to US$ 1.74, whilst Arabtec actually rose US$ 0.01 to US$ 0.52. Trading volumes on Thursday were again disappointingly low on seven days earlier, with only 134 million shares, valued at US$ 72 million, being exchanged (cf 119 million shares for US$ 107 million, the previous Thursday).

Both oil and gold had a miserable week so that by Thursday, Brent crude had closed 4.0% down at US$ 48.83, with gold closing US$ 15 lower at US$ 1,110.

The low oil prices are taking their toll on US shale producers as estimates of H1 losses come in at a massive US$ 30 billion. According to Factset, in H1 alone, US independents had a cash deficit of about US$ 32 billion; this is on top of the US$ 37.7 billion cash shortfall reported for the whole of 2014. In the current economic climate, it is impossible for the US shale oil industry to recover its net debt of US$ 169 billion as at 30 June 2015 – a liability that has more than doubled from the 2010 figure of US$ 81 billion. A sign of the times is that the number of operating rigs in the country has fallen 59% since its October 2014 peak. Perhaps this development will result in another US banking crisis?

In the UK, 14.8% (or 75k) of oil-related jobs, supported by direct and indirect employees, have been lost, attributable to the slide in prices.

Low commodity prices and the need to slash its estimated US$ 30 billion net debt has seen Glencore planning to sell US$ 2 billion of assets and raise a further US$ 2.5 billion, via a new share issue. Already this year, the Swiss-based mining conglomerate has shed 50% of its market value, with Standard & Poor’s cutting its rating from stable to negative.

Just when United was one of three US carriers claiming that Emirates were being supported by government subsidies and competing unfairly in the US market, its chief executive has stood down. Jeff Smisek, who is also chairman of the board, and two other senior executives, have quit as the carrier is being investigated for corruption, allegedly involving the head of the Port Authority of New York and New Jersey.

Troubled supermarket company, Tesco is expected to raise US$ 6.1 billion with the sale of its South Korean business to MBK Partners. The world’s third largest retailer has been losing business in its home market, with its credit rating now considered junk status.

Toshiba, having overstated its profits by US$ 1.22 billion over the past six years, posted a net annual loss of US$ 318 million as at 31 March. The 5-month delay in announcing its results was as a result of the sale of its 4.6% stake in the Finnish lift manufacturer Kone that raised US$ 946 million.

The financial and political woes facing President Dilma Rousseff continue unabated as Standard & Poor’s cuts Brazil’s credit rating to junk status. Latin America’s major – and the world’s 7th largest – economy is now in recession, as a result of mounting corruption, political turmoil, sinking commodity prices and escalating inflation.

Despite the slowdown in China, German July trade figures, assisted by a weakening euro, were the best since records began in 1991; exports rose 2.4% to US$ 115.5 billion, whilst imports climbed 2.2% to US$ 90.0 billion. Whether this will continue for the rest of the year is unlikely, particularly since Germany is China’s leading European trading partner. With growth continuing at similar sluggish rates as the previous two quarters – 0.2% and 0.4% – and the immediate prospect of one million new immigrants, the country will face difficult economic times.

Just as Germany was declaring record exports, the UK saw its exports sink 9% (or US$ 3.5 billion) in July, as manufacturing output also dipped 0.8%. The sector is not helped by competitors’ weak currencies, making their exports more attractive, and the continuing Chinese slowdown, where their July imports were 13.8% lower than a year earlier and exports off by 6.2%.

In January, the ECB introduced a massive US$ 1.25 trillion QE package, in an attempt to boost the flagging eurozone economy but this could backfire. There is always the danger that European governments will solely rely on this form of monetary policy and neglect much needed economic and structural reforms. Just printing money will make some people rich – and some governments breathe easier – in the short-term but is not a panacea for solving the underlying problems. The bank’s president, Mario Draghi, should exercise caution and ensure that he – and his crony bureaucrats – are not Forever Blowing Bubbles!

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