The Man Who Sold The World

david-bowieTo the surprise of many real estate “experts”, who had forecast that 2015 would see as many as 30k units completed in Dubai, JLL reported that only 8k hit the market in both Dubai and Abu Dhabi, compared to 16k a year earlier. So much for an oversupply! There is no doubt that the market is nervous about external factors such as the high dollar, low oil prices, localised geopolitical conflicts and a cut back in public spending.

Dubai Land Department’s 2015 report indicates that real estate transactions topped US$ 72.8 billion – an 8.0% increase on 2014 with 63.7k transactions. Of that balance, with 48k transactions, sales equated to US$ 35.4 billion of the total, with 12k mortgage deals, coming in at US$ 31.9 billion. Sales and mortgages relating to just land transactions accounted for nearly 73% of the 2015 value, whilst there were 47k dealings, totalling US$ 19.6 billion, representing 27% of the balance.

The three leading locations for apartment sales transactions were Business Bay (3,212 – US$ 1.35 billion), Al Hebiya 4 (3,080 – US$ 701 million) and Dubai Marina (3,059 – US$ 1.70 billion). The three prime locations for mortgage apartment transactions were Dubai Marina (927 – US$ 488 million), Business Bay (814 – US$ 496 million) and Al Thunaya (739 – US$ 248 million).

Following a 2011 JV agreement between the Investment Corporation of Dubai and Brookfield to establish a US$ 1 billion real estate fund, its first project has just been announced – a 50-storey office and hotel building in DIFC. Completion is due by 2018.

It is expected that the initial mega plans for The Mall of the World will be scaled back, in the light of changing conditions – both economic and environmental. Although the project will still cover 9.15 million sq ft, it is now proposed to build three malls in stages, as demand and capital dictate, rather than one massive structure. Apart from the numerous shopping outlets and malls, the project will also have 8k residential units and 35 office buildings, along with a central terminus for the Metro, tram, bus, taxi and the new electric shuttle. The project – which could eventually cost US$ 20 billion – will be 50% financed by Dubai Holding, with the remaining half coming from the private sector.

Work has started on the US$ 196 million phase 2 Dubai Trade Centre District project, including two office buildings of 12 and 8-storeys. Al Futtaim Carillion, the main contractor, has already completed phase 1 – the 588-key Ibis hotel and an 8-level office tower.

Although occupancy remains at high levels (84.9%), Dubai’s luxury properties are facing increasing revenue pressure, as ARR (average room rates) drop 6.9% to US$ 315. The 4/5 star hotels have seen RevPAR (revenue per available room) and TRevPAR fall 8.1% and 12.0% respectively. A mix of lower revenue streams and higher expenses has resulted in GOPPAR (gross operating profit per available room) sinking 15.8% to US$ 215.

One hotel that hopes to make a financial killing next month is Anantara The Palm that has announced a US$ 109k Valentine’s Day package. This includes an exclusive beach villa, a helicopter tour and a further two nights at its sister Anantara Kihavah property in the Maldives.

Roda Hotels, a division of Dubai International Real Estate, is quickly expanding and expects to open 1k hotel rooms in its 8 million sq ft Jewel of the Creek project by 2018. With other hotels being developed on Dubai Canal and Al Garhoud area, the company will be investing over US$ 2.2 billion in Dubai’s hospitality sector.

Next month, the Jumeirah Group will have a new chief executive as incumbent Gerald Lawless steps down after 18 years at the helm, to become responsible for tourism and hospitality with Dubai Holding. His replacement is Stefan Leser who has been executive vice president with Swiss travel group Kuoni.

It appears that the Al Habtoor Group is planning to replicate its Dubai Al Habtoor City concept in Cairo. The 800k sq mt project will incorporate three luxury hotels, three high-rise and six mid-size residential apartment towers, as well as 200 villas. Services will include shopping facilities, schooling, golf course and two polo fields.

Despite industry experts pointing to a flat 2015, Al Habtoor Motors have bucked the trend, announcing a 10% surge in overall sales. This included 68k Mitsubishi models and 450 Bentleys – helping the company maintain that brand’s leading global distributorship.

With a current 12% share of the local district cooling market, Emicool (Emirates District Cooling) is planning to expand this to 20%, with a 117% increase in capacity to 250k tonnes, by 2020. The 12-year old company, a JV between Dubai Investments and Union Properties, recorded a 23% jump in consumption last year.

It is reported that the RTA is seeking finance options for its 15 km proposed Metro extension to the 2020 Expo site. It will probably make use of the new PPP (public private partnership) legislation to raise the estimated US$ 2 billion.

Sweden’s Vostok New Ventures Ltd has invested US$20 million in UAE-based Propertyfinder Group, valuing it at US$ 200 million. The company employs 150 staff and, with over 1 million monthly users, has generated 300k leads for real estate agents and developers.

Dubai-based Abraaj is expected to acquire 72% of CARE Hospitals from Advent International which – having bought this share in 2012 – has made a 250% return in the ensuing three years. Although no details have been released, it is thought that the Indian company, that operates 16 hospitals in the ever growing Indian medical sector, is worth in the region of US$ 280 million.

Standard & Poor’s have painted a less than rosy picture for UAE banks, with tougher trading conditions and negative 2016 growth. The expected culprits are blamed – low oil prices and the continuing global slowdown – that will result in weaknesses in both deposits and credit growth.

As the problem of absconding defaulters deteriorates, and banks’ profit margins are being impacted, local institutions are hiring overseas agencies to settle outstanding debts of clients who have left the UAE.

The Central Bank has revoked the licence of Dubai-based Al Zarooni Exchange for compliance violations relating to anti-money laundering. Last November, the US Treasury also imposed sanctions for laundering money for criminals and political extremists.

With the proposed introduction of VAT in 2018, the federal government is expected to boost its coffers by up to US$ 3 billion every year. The rate will be between 3% – 5% and will exclude certain food items and services such as healthcare and education.

It has also been reported that the GCC has agreed to unified taxes that will see a 50% levy on all soft drinks and 100% on energy drinks and tobacco. It would be another two years before this becomes reality.

There was finally some good news for embattled Arabtec, with the announcement of a US$ 545 million Aldar contract to build over 1k villas on Yas Island. Work on the 440k sq mt project will start almost immediately and handover of the villas, with a starting price of US$ 1.1 million, will occur within two years.

Having shed 5.9% of its value last week, the DFM opened Sunday at 2966 and closed 5.1% down at 2815 on Thursday (14 January 2016). Both bellwether stocks, Emaar Properties and Arabtec, were in negative territory down US$ 0.15 (again) to US$ 1.25 and US$ 0.01 to US$ 0.31 respectively. Trading volumes on Thursday were up on last week at 405 million shares, valued at US$ 134 million, changing hands, (cf 317 million shares for US$ 106 million, the previous Thursday).

Falling 9.3% in the first week of the New Year was a disaster for oil, with the following week not much better, as Brent crude sank a further 8.1% (US$ 2.72) to US$ 31.03. Meanwhile gold lost most of its first week’s gains, dropping US$ 34 to US$ 1,074 by Thursday (14 January) close.

Royal Dutch Shell’s attempt to take over BG Group for a reported US$ 47 billion has hit a snag, with one of its major shareholders, Standard Life, opposing the deal. It cited both falling oil revenues and operational risks of its Brazilian assets that could jeopardise Shell’s future value. However, with only 1.7% of the oil company’s B shares (ranking it the company’s 11th largest shareholder), Standard Life’s chances of success appear dim.

Hollywood’s Legendary Entertainment – maker of films such as Jurassic World and Dark Knight Batman – has sold a controlling share to Dalian Wanda Group for US$ 3.5 billion. The Chinese company, with that country’s richest man Wang Jianlin in charge, is the world’s largest movie theatre operator, with a major share in the US chain AMC.

Aramco has confirmed that it is considering what could be the largest ever IPO, with a figure of US$ 2.5 trillion being bandied about. The world’s biggest oil producer, which controls reserves ten times that of the Exxon Mobil, is considering various finance options. These include a percentage of the parent company shares or hiving off certain “downstream” units. With such low oil prices, it may not be the best time to be selling off the “family jewels”. (Last year, Saudi’s petroleum exports reached US$ 285 billion).

BP has announced the retrenchment of at least 5% (or 4k) of its work force as it battles to slash costs, by US$ 3.5 billion, because of the slump in oil prices. Over the past 18 months, since the start of the current crisis, as prices have slid 75%, its shares have tanked by 40%. Other majors, including Chevron and Royal Dutch Shell, are following similar strategies as Q4 upstream earnings are expected to be down 84%, year on year, and 48%, quarter on quarter.

Two months after acquiring the power and grid businesses of the French company Alstom for US$ 10.5 billion, GE announced plans to cut 18.5% (6.5k) jobs in Europe. Even though 10% of this total will be French-based retrenchments, the company is still standing behind its promise of creating a further net 1k positions in that country.

The European Competition Commission has ordered Belgium to recover US$ 763 million from 35 international companies after it was found that tax breaks given were illegal. It seemed that such companies could get up to 90% of its taxable profit reduced – a scheme that was not available to smaller localised entities, thus distorting competition.

McDonalds, with 8k European restaurants, is the latest multinational to face EU investigations for its trading practices on two fronts. The first involves its nefarious tax arrangements with Luxembourg and the latter the alleged abuse of its dominant market position – at the expense of both customers and franchisees.

The UK’s Water Services Regulation Authority (OFWAT) has been accused of overcharging households, when allowing suppliers to benefit by as much as US$ 1.8 billion, over the past five years. MPs were critical of the authority for not adopting different approaches to setting price limits, for the various water authorities, and not protecting the interests of customers.

A report by estimates that Australian families splurged US$ 19.2 billion, including US$ 2.2 billion on Christmas presents, in credit card debt over the recent festive season. Once again, banks will be the main beneficiary, picking up an extra US$ 200 million in additional interest payments.

After having been mired in deflation (at one time at minus 2.9%) for the past 33 months, Greece’s inflation rate shows signs of improvement with its December CPI falling only 0.2% year on year. However, a bigger problem faces the Tsipras’ government this year. Government debt of US$ 340 billion (mostly owed to the EU) is at 177.1% to GDP and it is widely acknowledged that this is too high; annual interest alone is in excess of US$ 22 billion. The IMF has a negative outlook on the country’s prospects and would like to see more leniency in the way of debt relief from the EU side. The country’s tax and pension reforms are progressing too slowly and its plans to privatise government assets has been a disaster – only 6.4% of its US$ 54 billion target has been achieved to date.

Eurozone growth at 1.6% has been patchy and should be a lot higher than this year’s 1.8% forecast, especially as it has so many factors going its way. These include historically low interest rates, a weak euro, and sliding oil prices. If it cannot take advantage of such favourable aspects, then it will struggle this year with problems such as the immigration crisis, increased terrorist threats, local political uncertainty and non-performing bank loans; these are at highs of over US$ 1 trillion.

China’s latest estimates are that the country will report growth levels of around 7.0% – its lowest level since 1990 and down from 2014’s 7.3%. In December, trade figures were better than expected, with imports up 2.3% – compared to the forecast fall of 4.1% – and imports down only 4.0% (cf 7.9%). For the year, both exports, at 1.8%, and imports, at 13.2%, headed south.

Apart from being a music giant for fifty years, David Bowie was also a cultural icon in fields such as art, film and fashion. What is less known is his impact on the financial world, with his 1997 introduction of Bowie bonds? His asset-backed security (a backlog of all his recordings), bought by Prudential Financial for US$ 55 million, was sold on to creditors, who were guaranteed an annual 7.9%, as future royalties were paid in. This innovative way of using unorthodox assets to back securities was a forerunner for the sub-prime crisis a decade later when mortgages were used, instead of royalties, as collateral. It was this that brought the global economy to its financial knees so was David Bowie – The Man Who Sold The World?

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