To Ring The Alarm!

traffic-szrAccording to the latest CBRE ME report, prices of Dubai villas and apartments have seen annual falls of 14% and 16%, as total transactions have plummeted 33%. With an estimated 48k units being delivered over the next three years, it also expects further price deflation, with villa values down by another 10%. However, as the Dubai population – say of 2.6 million – has had an annual increase of 7.5% over the past two years, with all indicators that this trend will continue up to 2020, surely the demand will be out of sync with supply. Strip away the labour population of 1 million, it seems that there will be an extra 120k (7.5% of 1.6 million) added to the population every year.

In addition, the property developer estimates that 6k units, scheduled for completion this year, have been largely completed but have not yet been handed over to buyers. There is also the ‘X’ factor and its impact on the economy, with Arqaam Capital forecasting a US$ 23 billion windfall for the country’s GDP because of Expo 2020. It is expected to create 277k jobs and 153k visitors every week during the 6-month exhibition. Surely this would see the demand curve heading upwards?

In a bid to help stalled projects, the Dubai government introduced two schemes – Tanmia and Tayseer – four years ago, to secure government or private investment. Since then, under the former initiative, 56 projects, valued at US$ 3.3 billion, have restarted including 12, totalling US$ 545 million, in the past year. Eight developers are listed under the Tayseer plan which covers 40 delayed projects in Business Bay, with the proviso that the project is already 60% built.

Following an agreement with the Al Futtaim Group, Laservision Mega Media is to introduce a world-class water, sound and light show at Dubai Festival City. Scheduled to start in Q3 2016, the producers are looking at replicating the best of its other global attractions, such as Hong Kong’s A Symphony of Lights and Singapore’s Wonder Full at Marina Bay. Moreover, the Dubai retailer is expanding the 2 million sq ft DFC Mall by a further 400 retail outlets, 75 cafes, a Novo cine complex and parking for 6.5k vehicles.

There is no doubt that the hospitality sector has had a rocky year, exemplified by disappointing November data from STR Global. Preliminary figures show all indicators heading south, as new supply (5.4%) outstrips demand (2.4%). Despite major events in the month – such as the Big 5, International Motor Show, Airshow and numerous high profile sporting events – average occupancy dipped 2.9% to 83.0%. Average daily rates and revenue per available room both dropped by 7.1% to US$ 242 and 9.8% to US$ 201 respectively.

2016 will prove a hectic year for the Al Habtoor Group’s hotel division as it has been allocated an extra US$ 545 million, for further overseas expansion. Following the recent soft opening of St Regis Dubai at Al Habtoor City, the two other adjoining 5-star properties – The W and The Westin – will both open early next year.

The value of the conglomerate’s Dubai assets is put at US$ 3.4 billion, as its total revenue was up 16%. Its auto division posted record sales of 50.7k Mitsubishi vehicles (equivalent to 60% of all that maker’s GCC sales), as revenue for the nine months to September rose 17%. There was also a 5% revenue increase in its real estate division over the same period and this will be boosted when the 1.4k Al Habtoor City apartments and the Polo Resort & Club’s villas are released in the market.

A recent report by Lamudi indicates that since the turn of the century, a total of 190 skyscrapers has been built in Dubai, compared to just 23 in London. There is no doubt that such buildings – above 150 mt – are gaining in global popularity, with China now boasting 800. Last year, a record 97 buildings of over 200 mt were built globally.

Last week, the Ruler’s private real estate company, Meraas Holding, initiated a hospitality division. Under the 2020 Dubai Medical Tourism Strategy, the emirate hopes to attract 500k medical tourists, within the next five years, and companies, like Meraas Healthcare, want to tap into this burgeoning sector.

Ten years ago, McGettigan’s started its first venture outside of Ireland and now it has 11 hotels (one in Dubai and 10 in Ireland) and 11 pubs in Ireland, UAE, Singapore and New York. The chain has announced expansion plans for opening 40 new worldwide outlets before 2020.

The French nursery company Babilou Group, with 850 European centres, is to launch 20 more in the UAE by 2018. Initially focussing on Dubai, it has already opened its first in Downtown, with a second in Umm Suqeim next month.

It is reported that one of the emirate’s leading SMEs – Dubai Desert Extreme – is considering selling up to 40% share in the company to finance regional expansion plans. The distributor of bicycles and sports equipment, established in 2001, has 11 outlets, employing 160 staff and has an annual turnover of US$ 20 million.

This week, Dubai-based Aster DM Healthcare opened a medical facility in Bahrain and is planning to invest a further US$ 136 million for GCC expansion over the next two years.

Paris Gallery, the local retailer, has opened its first franchise store in Baghdad. The company, with a portfolio of over 600 luxury brands, has over 90 outlets in the GCC.

Dubai’s Fajr Capital is in discussions to buy a major shareholding in Cravia which owns the UAE licences for brands such as Cinnabon and Zaatar W Zeit, along with Five Guys rights in Bahrain and Saudi Arabia. Its annual turnover is reportedly US$ 55 million, with 71 outlets mainly in the UAE.

Marka Hospitality has signed an agreement with d3 (Dubai Design District) to open Dubai’s first Harper’s Bazaar Café in Q1 2016. This offshoot of the luxury fashion magazine will have a 140-seat capacity.

Moisekin has made a 65 kg clock valued at over US$ 1 million. The Russian jeweller has showcased the piece, with 1 kg of gold and 2k diamonds, at Dubai International Jewellery Week which ended on Saturday.

50 employees will lose their jobs as Yahoo plans to close its Dubai regional office next April. This follows the closure of other offices last year – in Amman and Cairo – in a bid by the internet giant to streamline its business. Over the years, it has been left behind by the likes of Google and Facebook, and although still valued at US$ 32 billion, this includes its US$ 30 billion stake in Alibaba.

Dubai authorities are reportedly contacting the Guinness Book of World Records to check whether its new US$ 8 million facility, located in Zabeel Park, is the largest global glow-in-the-dark gardens. The park, with installations based on wonders of the world by over 150 artists, opened on Wednesday.

Following a recent Deloitte report estimating that golf brings in US$ 131 million a year to the Dubai economy, the Investment Corporation of Dubai has appointed Peter Dawson as a consultant. The current president of the International Golf Federation and former chief executive of the R&A is to try and enhance the emirate’s position as a global golfing destination.

In a PPP (public private partnership), the RTA is to add 400 extra air-conditioned bus shelters (of which 150 will be solar-powered) with Right Angle Media Company, bringing the total number of such units to 1.3k by 2017. In addition, 50 smart shelters – with Wi-Fi and café facilities – will be built.

The RTA reportedly has invited bids for a 300 mt long, 22 mt wide bridge to replace the 40-year old Shindaga Tunnel. Last month, a tender was issued for the construction of Al Ittihad Bridge, also crossing the Creek.

Dubai’s annual inflation rate continues to fall and is now at 3.07%, year on year, and down 0.19% on the month. Although transport costs and food prices continue to fall (by 2.23% and 1.52% from October), housing and utility costs jumped 6.87% on the year and 1.14% for the month.

His Highness Sheikh Mohamed bin Zayed Al Nahyan is on an official visit to China, to meet President Xi Jinping, at which a US$ 10 billion joint strategic investment fund was set up. Abu Dhabi’s Mubadala and the China Development Bank will jointly manage the investment. Over the past 30 years, bi-lateral trade has gone from a tiny US$ 63 million to a probable US$ 60 billion by year end. Furthermore, China is Dubai’s top trading partner in 2014, with a total of US$ 45.7 billion. It was no surprise therefore to see the Abu Dhabi Crown Prince tweet that Dubai Ports is planning a US$ 1.9 billion investment in a country where it already has operations in Qingdao, Tianjin and Yantai.

DP World is also holding discussions with British Columbian authorities on possible expansion plans for the Fairview Container Terminal in Prince Rupert.

Government developer, Nakheel, has made its second profit payment (of US$ 60 million) this year, on its US$ 1.2 billion trade creditor sukuk.

It seems that longstanding negotiations, over US$ 2.3 billion of outstanding debts, between Dubai Drydocks World and its creditors (represented by six financial institutions) have stalled. On one hand, the Dubai World subsidiary is hoping for an extension to the first 2017 tranche of US$ 800 million – with a small cash repayment. For the balance of US$ 1.5 billion, maturing in 2027, DDW has offered either a smaller cash settlement or an extension. The creditors would evidently prefer a cash settlement in 2017 and a cash premium on the debt due in 2027. Discussions are on-going.

Atlantique Telecom, a subsidiary of Etisalat, has been hit by a US$ 451 million fine payable to Sarci, a minority shareholder in Telecel Benin. The company is appealing the verdict. Also this week, it is reported that the UAE telecom operator is negotiating a US$ 2 billion revolving credit facility, prior to future rate hikes.

MAF Holding became the latest local company to list on Nasdaq Dubai. Its US$ 500 million sukuk brings the exchange’s total 2015 sukuk listing to US$ 13.25 billion.

The DFM opened Sunday at 2945 and closed 4.3% up at 3073 by the end of the week (17 December). Of the bellwether stocks, both regained the previous week’s losses with Emaar Properties up US$ 0.16 to US$ 1.56, and Arabtec US$ 0.03 higher at US$ 0.30. Trading volumes on Thursday improved with 386 million shares, valued at US$ 120 million, changing hands, (cf 215 million shares for US$ 84 million, the previous Thursday).

In the previous week, Brent crude sank 9.7% (US$ 4.13) to US$ 39.61 and fared little better over the past 7 days, down 6.3% to US$ 37.11, as whilst gold slipped US$ 19 to US$ 1,053 at Thursday (17 December) close.

Last month, VW recorded global sales of 496k vehicles – a fall of 2.4% – with YTD sales slumping 4.5%, as a result of the emissions scandal; the company is unlikely to reach last year’s total turnover of 6.12 million units. Because of other economic reasons, sales in Brazil and Russia have fallen 51.4% and 31.8% respectively.

The Chinese Ministry of Commerce, following approval by other global authorities, including those in Australia, Brazil and the EU, has cleared royal Dutch Shell’s US$ 71 billion takeover of BG GROUP. The final hurdle will take place early next year when the shareholders have their say. If the deal goes ahead, Shell will gain greater access to the LNG market.

Rio Tinto has managed to source financing for its US$ 4.4 billion Oyu Tolgoi project. The Mongolian copper and gold underground mine will take up to 7 years to develop.

Following last month’s US$ 108 billion takeover of SAB Miller by Anheuser-Busch InBev, it seems that the former SAB Miller Peroni and Grolsch beer brands may be hived off for US$ 2 billion to a syndicate, headed by TPG Capital. It is inevitable that smaller breweries, such as Heineken and Carlsberg, will also show interest.

Despite Emirates propping up sales of 380s, with 38.7% (67) of all deliveries and 44.2% (140) of firm orders, Airbus is struggling and has reduced production to 30 this year, as interest dwindles. Indeed the plane maker received no new orders in 2015 and so it is looking at a revamped version of the superjumbo that would entail a fully re-engined plane. Last year, Airbus delivered 630 planes from its total range – in 2015, the figure could be marginally lower.

In the US, Fiat Chrysler has been hit with its second fine this year; in July, it reached a US$ 105 million settlement, relating to its handling of 20 recalls, covering 11 million vehicles – and now a US$ 70 million fine for its failure to disclose death and injury reports. Last month, the US National Highway Traffic Safety Administration also fined Takata Corp US$ 70 million for failures to disclose defects in its airbags.

20 package delivery firms, including the likes of the French divisions of DHL, FedEx and TNT, have been fined a total of US$ 742 million for colluding in price-fixing. UK’s Royal Mail was also involved and paid a US$ 61 million fine – its French division accounts for 17% of the company’s total revenue. The French anti-trust authorities have also fined telecom operator, Orange, US$ 385 million for abusing its dominant market position in that country.

In 2010, the EC fined 11 airlines – but none from the ME – US$ 735 million for fixing freight prices, with Air France (US$ 168 million) and KLM (US$ 117 million) bearing the brunt. At the time, Lufthansa escaped any penalty, as a result of providing evidence to the commission. Five years later, the General Court of the EU has backed the airlines to appeal the original decision.

Starbucks (with 800 outlets) is back in the news for all the wrong reasons, as it is reported that the company paid just US$ 12 million UK corporation tax this year. This is just slightly less than the US$ 13 million it paid in its first 14 years, when its total revenue was US$ 4.56 billion. Although the current US$ 52 million profit was nearly 17 times higher than in 2014, its tax bill was lower. No wonder then that the EC is closely investigating the tax affairs of many international companies who seem to be working the system.

Even in September 2014, blog ‘Foxy Lady’, it seemed that Christine Lagarde was being investigated. This week it was confirmed that the ex French finance minister, and current head of the IMF, is to stand trial for negligence. It relates to a 2008 US$ 438 million payment involving Bernard Tapie, a supporter of the then President Nicolas Sarkozy.

A recent study has estimated that online trading has doubled over the past 7 years and now accounts for 6% of the overall US economy. Employment over the same period has jumped from 1.5 million to 3 million, whilst the sector accounts for US$ 966 billion in economic activity.

It was definitely no surprise to see the Federal Reserve hike interest rates by 0.25% for the first time since 2007. This move is seen as the start of a gradual tightening in monetary supply that will probably result in a further three similar rises in 2016 for a median rate of 1.125%. The steady rise in economic growth, pick-up in the labour market and confidence that inflation will attain its 2% target in the medium-term made Janet Yellen’s decision inevitable.

With inflation levels of 25%, a sinking currency and depleting foreign reserves, incoming Argentine president, Mauricio Macri, has had to take drastic action. His decision to relax currency controls, brought in by the former leader, Cristina Fernandez de Kirchner, will result in the peso falling at least 40% from the official 10 to US$ 1 to 14. The government hopes that this will fuel economic growth and boost its flagging exports. On the flip side, imports become more expensive.

The World Bank estimates that the age old custom of slash and burn has cost Indonesia US$ 15.7 billion this year alone – twice as much as incurred from the devastating 2004 Aceh tsunami. This equates to 1.9% of Indonesia’s GDP and is often the result of companies illegally clearing land for palm oil and pulp wood plantations; an estimated 800k hectares have been burnt out by October this year.

The federal government has downgraded Australia’s May growth forecast for 2016 of 3.25% to 2.75%, which is slightly higher than the 2.5% expected in the current year. Furthermore, the budget deficit has widened by 6.6% to US$ 27.1 billion. The bad news is in contrast to the recent encouraging employment figures, which have seen 340k new jobs, added over the past year; the expected 6.0% unemployment level next year is lower than the original forecast of 6.5%. Inflation is set to range between the 2% – 3% target, as the country readies for a newer type of economy, beset by falling commodity prices, fragile global growth and decreasing terms of trade.

The November UK annual rate of inflation returned to positive territory, with a 0.1% reading, compared to a negative 0.1% the previous month. It is likely to remain at these levels for some time that is good news for consumers – with more spending power and the unlikelihood of the Bank of England hiking interest rates in the short-term. (Latest figures show annual average earnings up by 3.0% – which is obviously a lot higher than the current 0.1% inflation rate).

The unemployment rate has fallen over the past year from 6.0% to 5.2% (1.71 million) – its lowest level in nearly 10 years – whilst job vacancies at 707k is at its highest in 14 years; currently, there are 31.3 million people in employment – up 505k – as average annual earnings rose by 2.4%.

Mystery surrounds the recent disappearances of several Chinese financial firms’ executives which seem to coincide with a crackdown by authorities, following dramatic mid-year falls in the stock markets. Last month, Yim Fung, the Hong Kong boss of Guotai Securities, was reported missing, followed this week by the disappearance of Fosun International’s chairman, the legendary Guo Guangchang. In addition, the biggest mainland brokerage firm, Citic Securities, announced that two of its investment bankers have gone AWOL. It could be time To Ring The Alarm!

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