Life In The Fast Lane

dubai-creek-hsbcLast week, a report indicated that 2015 property sales for both Abu Dhabi and Dubai amounted to just 8k, whilst a new study this week points to 18.6k units. Phidar Advisory also reported that villa and apartment 2015 sales were down 14.8% and 12.7% respectively, with lease rates falling 5.1% and 1.9%. Interestingly, when it comes to compound annual growth rates, demand at 6.5% is greater than supply’s 3.6%. Yet two other reports this week had different 2015 supply figures; a ValuStrat study, estimated that 18k apartments and 3.77k villas were delivered whilst Cavendish Maxwell came in with 8.8k units. If last year’s supply figures show such variances, what credence can be given to both historic reports and future data and forecasts?

Latest nine-month figures from Dubai Land Department go some way to silence the doomsayers in the market. The 33.9k land and property deals to September totalled US$ 50.8 billion, well on its way to supersede the US$ 59.4 billion reported in 2014. Although commercial land sales at US$ 17.4 billion were the largest contributor, the 21.7k property sales, including buildings and units, brought in US$ 8.7 billion.

When it comes to supertall (300mt +) structures, Dubai, with 18, rules the world – a long way ahead of 2nd place, New York, with just 7. There are now 100 such towers, with half of them built over the past five years. Over the coming years, Dubai will add a further four to this listing – Burj 2020 in JLT, Dubai One in Meydan One, Entisar Tower on SZR and RP One in Business Bay.

Damac Properties has announced the US$ 231 million launch of the five-tower Navitas Hotel & Residences in its Akoya Oxygen development. The hotel will have 312 rooms, available for sale with prices starting at US$ 120k, whilst the four other towers will be for residential units.

The ME’s first bio-dome is scheduled to open in Q2. Meraas has launched The Green Planet, that will contain over 3k plants and animals, in an attempt to replicate a tropical forest at Dubai’s City Walk. The same location will also see the opening of Valiant Clinic, an offshoot of the US-based Houston Methodist Hospital, who will manage the operation for the developer’s new healthcare division.

Over 60% of the available retail space in the upcoming Riverland component of the Dubai Parks and Resorts multi-theme park has been taken up. With eight months still to go before the park’s October opening, 34 leases have already been signed and it seems likely that all the 220k sq ft of dining and retail space will be filled long before then. The operators have forecast 6.7 million ticketed visitors in its first year which will go some way to recover the facility’s US$ 2.9 billion estimated cost.

A recent Deloitte report seems to confirm what has been known for some time – Dubai hotels will see a continued softening in occupancy rates. The 70 – 75% forecast is still high by global comparisons but well down on the recent past level of up to 85%. Increased competition, as well as supply outstripping demand, could see more competitive pricing in the sector.

DP World has signed a potential US$ 2 billion JV with the Russian Direct Investment Fund that could result in the global ports company pumping in 80% of that total to invest in Russian marine, dry port and logistics infrastructure.

With an initial US$ 8 million investment, Medstar Day Surgery Centre has opened its first surgery in Dubai Healthcare City. The new 20k sq ft facility employs 50 staff and is the forerunner for a further US$ 100 million expansion plan, including three new centres before 2018.

A partnership agreement between Mir Hashem Khoory Group and UK’s Kent College will see the opening of Kent College Dubai in September. The US$ 40 million, 400k sq ft campus is located in Meydan and will be able to house up to 2k students, including boarding facilities. The college will cater for students from ages 3 – 18.

The Philippines’ largest fast food chain, Jollibee, is set to establish a further six Dubai outlets (including MoE and Burjuman) as part of its plans to roll out a total of 100 in the GCC by 2020. The company had earlier opened its 1,000th global branch in Dubai Mall.

The Oman-based Enhance Operating Companies, part of the W J Towell group, is spending US$ 27 million on a new logistics centre in Dubai Industrial City. The first of two buildings, covering 163k sq ft, opened this week with the second due for completion by July. The Dubai division will employ 800 personnel.

Despite all the negative sentiment around, Dubai Chamber of Commerce reported a 9.5% hike in new member companies, bringing the total registered entities to 185k.

A marginal drop saw Dubai’s December inflation rate at 3.05%, as housing rentals flattened – down 0.6% to 5.9%. The strong US$ is leading to a price reduction in many imported items.

Emirates NBD is the first of the banks to announce Q4 results. The financial institution, 55.6% owned by the Investment Corporation of Dubai, posted a 74% surge in quarterly profits to US$ 580 million, with a 39% hike in annual net profit to US$ 1.94 billion. The expected dividend of US$ 0.11 per share will be 14.3% higher than that for 2014. The bank is also testing the waters in relation to the lifting of the Iranian sanctions; any ensuing business activity could be a welcome future income stream for Emirates NBD (and other local financial institutions).

Its sister bank, Emirates Islamic, also recorded impressive 2015 figures, with both total net income and net profit up by 24.6% to US$ 662 million and 76.0% to US$ 175 million respectively. Their balance sheet shows financing and investing receivables rising 31.0% to US$ 9.3 billion and deposits up 25.0% to US$ 10.7 billion.

Most local banks have benefitted over the past few years, in tandem with economic growth and a thriving corporate sector. However, with the recent slump, resulting from many macro-economic problems, financial institutions are in for a rough ride. Standard & Poor’s latest forecast is that the ratio of Non-Performing Loans to Total Loans, which had dropped from 4.2% to 2.2%, over the past five years, will now start to reverse.

After 70 years, HSBC is moving from its Creek office to a new US$ 250 million building in Downtown. Gulf Resources Development & Investment will construct the 860k sq ft, 20-storey tower and then sell it to the bank, on completion late next year. Most of the 4k staff will be housed in the new building, with the bank also maintaining a presence in Dubai Internet City.

According to a Thomson Reuters’ report, the ME 2015 merger and acquisition sector was 13.0% higher at US$ 56.2 billion – with outbound activity up, 34.0% to US$ 35.2 billion, and inbound by 29.0% to US$ 5.4 billion. The UAE, with deals topping US$ 16.2 billion, accounted for 46% of all overseas acquisitions, followed by Qatar and Saudi, with 36% and 10% of trades respectively. Meanwhile domestic activity fell 16% to US$ 11.3 billion. ME investment banks did not fare so well seeing fee income fall 16.0% to US$ 636 million.

2015 was a busy time for the Commercial Compliance & Consumer Protection division of the DED. During the year, the unit confiscated 63 million pieces of counterfeit goods, valued at US$ 275 million, (compared to just 37 million totalling US$ 51 million in 2014). The three most popular items, accounting for 43.8% of the total in value, were eye wear (US$ 46 million), accessories (US$ 38 million) and phones (US$ 36 million). Currently, the UAE is ranked 22nd in the World Economic Forum’s Global Competitiveness Report in intellectual property rights.

There was a significant announcement by the Chinese president Xi Jinping this week as he pledged up to US$ 55 billion in special loans and investments. The UAE (and Qatar) could be beneficiaries since the deal included an investment fund of US$ 20 billion specifically for these two countries, as well as US$ 15 billion for ME industrial projects and US$ 20 billion in loans to boost the energy sector.

Aramex has bought a 25% share in the US on-line business, WS One, for US$ 2.5 million. This is part of the Dubai-based company’s strategy to further boost its global presence, especially in the e-commerce sector.

Having already shed 10.7% of its value in the first two weeks of 2016 trading, the DFM opened Sunday at 2815 and closed 6.9% down at 2622 on Thursday (21 January 2016). Both bellwether stocks, Emaar Properties and Arabtec, were again in negative territory down US$ 0.06 to US$ 1.19 and US$ 0.01 to US$ 0.30 respectively. Trading volumes on Thursday were down on last week at 297 million shares, valued at US$ 88 million, changing hands, (cf 405 million shares for US$ 134 million, the previous Thursday).

Brent crude had a relatively good week only dropping 5.7% to US$ 29.25, following massive falls of 9.3% and 8.1% in the first two weeks of the year. Meanwhile gold regained most of its last week’s losses, rising US$ 24 to US$ 1,098 by Thursday (21 January) close.

Iran has confirmed that it plans to produce 500k bpd but this is still some way off the 2.3 million barrels produced in the days before sanctions were imposed.

Preliminary figures from Shell serve to emphasise the carnage that the oil price slump has had on the industry. The Dutch company expects Q4 profits down by at least 60% to around US$ 1.5 billion, whilst annual profits will come in at about US$ 10.5 billion, having already slashed operating costs by US$ 4 billion during 2015.

In the wake of the oil price slide, JP Morgan estimate that oil-producing countries will divest up to US$ 240 billion of international assets to make good the fall in revenue. It is thought that governments will also raise further finance by issuing bonds, to the value of US$ 20 billion.

In the US, Fiat Chrysler is facing a lawsuit alleging it inflated its car sale figures. The company has recorded 69 straight months year on year sales growth and, following a December 2015 surge, reported annual sales up 7.0% to 2.2 million units. However, a dealership has claimed that it was offered US$ 20k to falsely report the sale of an additional 40 vehicles.

The VW exhaust emission scandal may be spreading with reports that Renault is being investigated for similar activity. To date, nothing untoward has been discovered but enquiries continue. Peugeot has also been subject to official scrutiny. Following the VW scandal, UK’s Which? has found that 95% of all diesel models (and 10% of petrol cars) it tested emitted more nitrogen oxide than officially permitted.

It was not surprising to note that BHP Billiton’s shares tanked on Friday following news that it had written down the value of its US shale assets by a further US$ 7.2 billion, bringing its total in that country to 67% of its asset base. It has reduced the number of shale oil rigs over the past year from 26 to 9. The company is beset with problems as commodity prices – including oil, gas, iron ore, coal and copper – have plummeted and it still ascertaining the massive costs expected to arise because of last year’s mine disaster in Brazil. The Australian miner plans to cut 2016 iron ore production by 4.0% to 237 million tonnes and, at the same time, announced a US$ 450 million provision to cover redundancies and inventory write-downs.

Some US banks have been forced to extend provisions following defaults by collapsing energy companies, hit by the falling oil prices. Citigroup’s 2015 provision for its energy portfolio is US$ 530 million, of which US$ 280 million was set aside in Q4. (Even with this provision. and a further US$ 150 million for “macro concerns”, the bank’s Q4 profits were up tenfold, at US$ 3.3 billion, on the same period last year). Both JP Morgan and Wells Fargo reported higher oil and gas related losses and in Q4 set aside US$ 86 million and US$ 90 million respectively. This could be the tip of the iceberg that may have a greater impact on the global economy than the sub-prime debacle.

Bank of America also released impressive 2015 results with Q4 profit up 9.9% to US$ 3.0 billion and US$ 14.4 billion for the year. It does however forecast a tough 2016, even though its home country economy is steadily improving.

US authorities have reportedly reached a US$ 5.1 billion settlement with Goldman Sachs, following its use of fraudulent marketing material to sell residential mortgage-backed securities (RMBS) before the GFC. Consequently, Q4 results proved dismal reading, as profits fell for the third straight quarter, not helped by this huge penalty, with the big US bank recording a 71.7% slump in profit to only US$ 574 million.

If some consider Dubai’s economy to be sluggish, spare a thought for Puerto Ricans as that country enters its 10th starlight year of recession. With debts of over US$ 70 billion – and no way to fully repay them – US Treasury Secretary, Jacob Lew, is urging creditors to consider a debt restructuring plan, rather than a government bailout.

In a bid to stimulate the economy, French President Francois Hollande has introduced a US$ 2.2 billion plan to create new job opportunities and reduce the country’s 10.6% unemployment rate (compared to the EU average – 9.8% and Germany’s 4.2%). Small firms will receive subsidies for taking on young or unemployed people, whilst he hopes to create 500k vocational training schemes. Coincidentally, there is a presidential election early next year!

As widely anticipated, China announced that its economy expanded by 6.9% last year (7.3% – 2014) – its lowest level since 1990.   Despite its economic woes, venture capitalists poured a record 1,555 deals totalling US$ 37 billion into China in 2015 – more than double the amount recorded the previous year which in turn was triple the US$ 4.5 billion amount of 2013. The slowdown in the economy is epitomised by the facts that both electric generation (down 0.2% to 5,618 trillion kWh) and steel (2.3% to 803.8 million tonnes) fell for the first time in 47 years and 34 years respectively. Coal production slowed by 3.5% for the second year in a row. However, there was a 3.8% rise in crude oil usage to 10.44 million bpd.

It has been estimated that 1% of the world’s population has the same amount as the other 99%, with only 62 persons possessing more than 50% of the world’s people. The report decried the work of lobbyists and the use of tax havens, whilst calling for the global introduction of a living wage and a narrowing of the gap with executive remunerations. Oxfam, using data from Credit Suisse, undertook the study. It is ironic that the Swiss bank has recently been fined US$ 2.6 billion by US authorities for conspiring to help U.S. citizens hide assets in offshore accounts in order to evade paying taxes.

The governor of the Bank of England seems to have ruled out any early rise in UK interest rates. Citing tumbling oil prices, sluggish UK pay growth and an “unforgiving” global environment, Mark Carney seems to have changed his mind, as six months ago he signalled that rates would start to rise early in 2016.

On Tuesday, the FTSE 100 lost 3.5% (equivalent to US$ 74 billion) of its value, to close the day on 5640. The index has dropped 20.6% since its 27 April 2015 high of 7104 and, already this year, 9.7%. Most of the global bourses shared the same predicament.

The IMF has cut its 2016 global economic growth forecast to 3.4%, with only three of the large advanced economies – US, UK and (surprisingly) Spain – topping 2.0%. Brazil, hosting this year’s Summer Olympics, is facing a worrying 3.5% contraction, with Russia likely to be mired in recession for another year. All the much-expounded negative drivers – including weak oil prices and slowdowns in emerging markets and China – have resulted in oil producing countries’ forecasts being cut back, including Saudi Arabia to 1.2% (from 2.2% just 3 months ago). Notably, there have been no changes to earlier India and China forecasts – with 2016 growth levels remaining at 7.5% and 6.3% respectively. It may be some time before the global economy returns to Life In The Fast Lane.

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