I Wasn’t Expecting That

kimjong-unAccording to the 2016 RERA (Real Estate Regulatory Authority) official index, apartment rents have fallen by between 4.5% -11.0% in some areas such as Business Bay (11.0%), International City and JLT (both – 10.0%), Downtown and Palm Jumeirah  (both – 5.5%) and Discovery Gardens (5.9%). In most other locations, rentals have remained flat.

For the second straight month, Dubai property values remained flat according to the ValuStrat Price Index, registering 97.9 (compared to a January 2014 base of 100). The report indicated 4.5% and 5.6% yields for villas and apartments respectively.

HSBC became the first major bank to lift mortgage rates, in the UAE, by 0.25%, in line with the recent US Fed hike. Other financial institutions are expected to follow suit in the coming weeks, with rates as high as 7.0% likely. This seems a little out of kilter with the current EIBOR which ranges between 0.20% (overnight) to 1.52% (1 year).

The start of the New Year has seen the first tenants move into the US$ 300 million Sustainable City. The Diamond Developers’ project has a community farm and currently two operational biodome greenhouses – with a further nine by April – for home-grown produce for exclusive use of the residents. The 5 million sq ft development will house five clusters of residences, each with a communal area, playground and a central wind-tower.

Saudi-based Abdul Rahman Saad Al-Rashid & Sons is launching Mada Residences in Downtown – its first foray in the Dubai real estate sector. The project will contain 193 apartments but no other details – including cost and completion date – were made available.

AccorHotels will open its 3rd hotel within the Dubai World Trade Centre area. The 588-key ibis One Central will almost double the number of rooms that the operator manages in that location.

SRG Holding, a Dubai-based developer has paid US$ 200 million to Blackstone, for High Holborn Estate in London. It is reported that this could be four times the amount the US private equity firm paid for the 9-property office building in 2012 but it has since seen extensive refurbishment. The Abdul Salam Al Rafi Group also has a Dubai property portfolio including the Sheraton Grand, Chelsea Tower, Du Tower, Burj Al Salam and the Marquis Square development in Business Bay.

Dutco has landed the contract to restore fire-hit The Address Downtown to its former glory. No timetable has been released but it is expected that it will be speedily carried out.

Dubai Shopping Festival started on 01 January, with one of its major supporters, Damac Properties, yet again announcing attractive deals. The real estate developer is offering latest model BMWs or Lamborghinis to buyers of selected properties during the one-month event.

Krzysztof Kotala is still keen to build an underwater tennis stadium off Dubai’s coast. He has indicated that the project, now in its final stage, involves seven arenas, with a carbon-glass glazed dome. The Polish architect is in talks with US investors.

Dubai Duty Free recorded a marginal US$ 16 million increase in 2015 revenue to US$ 1.93 billion with average daily sales transactions of 73.6k. Perfume (US$ 310 million), liquor (US$ 291 million), cigarettes (US$ 161 million), confectionary (US$ 152 million) and gold (US$ 150 million) accounted for 55.2% of all sales.

DEWA’s 2016 budget sees a spend of US$ 6.4 billion, with US$ 2.4 billion being for capex – a 3.4% increase on last year. Power and transmission will account for 39.2% of the total (US$ 931 million), followed by generation (US$ 806 million). The authority will also utilise PPPs (public private partnerships) to help finance other projects as it moves to ensure that by 2050, 75% of Dubai’s energy will be “clean”.

The latest Emirates NBD PMI’s reading of 53.3 indicates that the country’s non-oil private sector is growing at its slowest rate since September 2012. More worryingly is that although any figure over 50 shows expansion, the latest is well down on the 59.3 recorded 12 months ago. Most indicators headed south pointing to lower demand – both domestic and external.

For some time, DFM volumes have been wafer thin – down 60.3% year on year to an average daily value of US$ 164 million – so it is little wonder that the current 49 brokerages are feeling the pinch. It is inevitable that brokers will be forced to close and / or consolidate. Nothing exciting will happen in this bourse until liquidity returns to the market, which has not materialised, as when expected because of its 2014 MSCI upgrade to emerging market status.

The DFM opened Sunday at 3151 and closed the week on Thursday (07 January 2016), taking a 5.9% tumble to 2966. Both bellwether stocks, Emaar Properties and Arabtec, were in negative territory down US$ 0.15 to US$ 1.40 and US$ 0.03 to US$ 0.31 respectively. Trading volumes on Thursday were up on last week at 317 million shares, valued at US$ 106 million, changing hands, (cf 182 million shares for US$ 74 million, the previous Thursday).

The first week of the New Year was a disaster for oil, as with Brent crude sank 9.3% (US$ 2.65) to US$ 33.75 whilst gold surged US$ 48 to US$ 1,108 by Thursday (07 January) close. Latest research from Deutsche Bank indicates that the UAE breakeven price is US$ 65 per barrel – almost half the current price. Put another way – if the country is pumping 2.9 millions barrels a day it will have an annual shortfall of US$ 38.1 billion (2.9 million * 365 * US$ 31.25).

The financial markets started the year in spectacular fashion with China’s CS1300 share index falling 7% in its first session before trade was suspended for the day. Two factors caused the problem – disappointing factory activity and the early prospect of the share sales ban being lifted some five months after its imposition on listed companies’ major shareholders.

There are reports that two of France’s four telecoms operators – Orange and Bouygues – are in merger talks. If the deal, valued at US$ 10.7 billion, were to go ahead, the new entity would control almost half the national market.

Another potential takeover would see Sainsbury’s take control of Home Retail Group (owners of Argos and Homebase). A November bid was rejected so that the group, which has 16.7% share of the UK grocery market, has until next month to return with a better offer. Coincidentally, Sainsbury’s co-founded Homebase but sold it in 2000 for US$ 1.4 billion.

Following years of losses, the Netherlands’ largest department store chain has declared itself insolvent. With 67 stores, Vroom & Dreesman employs 10k staff and could partially be saved, if restructuring is successful. The current owners, Sun Capital, a US private equity firm, bought the flagging business in 2010. (The country is the 18th largest global economy, with growth slowing from its current 2.1% level whilst its unemployment is on the high side at 6.8%).

The US retail giant, Macy’s, is struggling to keep up with technology changes in the sector, as it reported a difficult holiday season. For the year, the company expects same store sales to drop by 2.9% so as to maintain profit margins it has to look at drastic cost cutting measures. In Q1, 4.7% (or 36) of its outlets will close, there will be 600 back office staff made redundant and its St Loud call centre will close; all in all, this will cost an extra US$ 200 million in one-off costs.

Hyundai / Kia reported a 2.3% fall in forecast 2015 vehicle sales at 8 million units – the first time the group has missed its annual target since the GFC. There is no doubt that the South Korean carmaker is suffering from intense competition, a Chinese slowdown and very weak sales in countries such as Brazil and Russia. Meanwhile, whilst car sales in the US headed north. (UAE is expecting to show a drop in 2015 numbers).

UK car sales are expected to reach the record level of 2.63 million – up 6.0% on 2014 (and could have been higher if not for declines in VW sales in Q4).  The sector benefitted from low interest rates, a strong £ v euro and strengthening consumer confidence.

VW expects 2015 sales of 5.8 million units – its first annual fall since 2004. Meanwhile it is reported that the company may have to buy back 115k vehicles (or 20% of its diesel vehicles affected) because of the emission scandal. This is petty cash compared to Monday’s announcement that the US Justice Department would be suing the German carmaker for US$ 48 billion for allegedly violating US environmental laws.

A huge financial scandal is brewing in India as a property investment company is accused of defrauding 55 million investors of US$ 6.8 billion. The founder of PACL Ltd, Nirmal Singh Bhangoo, claimed that he was selling land but has allegedly been running an illegal investment scheme.

Jermyn Street Real Estate Fund, a group of international investors including from the UAE, has spent US$ 434 million to buy Astir Palace, a luxury seaside resort, from Greece’s privatisation agency. 75% of the total is expected to go to the National Bank, which owns 85% of the resort, with the balance to the agency.

Despite a target of US$ 54.2 billion to raise from government asset sales, to date only US$ 3.8 billion has landed in government coffers. Meanwhile the country will continue to face a difficult year, as it needs to introduce unpopular economic measures; these include pension and tax reforms, so as to meet the requirements of its US$ 93.4 billion bailout funds from the troika, the IMF, EC and the ECB.

Turkey reported that its 2015 trade deficit contracted by 25.5% to US$ 63.1 billion – as exports fell 10.1% to US$ 11.7 billion and imports were down 14.5% to US$ 207.1 billion.

Germany’s December unemployment rate remained at a record low of 6.3%, indicating that the economy is on the right track for growth in 2016 – and this despite the recent influx of an estimated 1.1 million migrants. With this record employment and annual inflation at its lowest ever level, it appears that the main growth driver will be private consumption because of increased consumer purchasing power.

Prior to this week’s economic meltdown, the World Bank had cut its 2016 global growth forecast from 3.3% to 2.9%, in the wake of weak data from emerging countries. With the exception of India (which also has its problems), the BRICS are all slowing down simultaneously which could have a negative impact on other global economies.

Markets do not like uncertainty and volatility and this week saw an abundance of both. The first four days of 2016 trading have witnessed:

  • US$ 2.5 trillion being wiped off the value of global stock markets
  • S&P having its worst ever opening in history
  • the FTSE losing US$ 2.5 trillion by Thursday’s close
  • Brent crude dropping to its lowest level since June 2004
  • China actively moving to weaken its currency, with the Yuan now at 6.565 to the US$, dipping to an 6-year low, as weak economic data becomes its norm
  • on-going regional problems
  • North Korea’s claims to have tested a hydrogen bomb
  • increasing tensions and a diplomatic impasse between OPEC’s dominant partner, Saudi Arabia, and fellow cartel member Iran

I Wasn’t Expecting That!

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