Leave Us Alone!

LA-dodgersAlthough most of the sector’s players have predicted a dismal 2016 for Dubai’s real estate market, official figures paint a brighter picture. The Dubai Land Department reported that, by 22 February, YTD transactions have totalled US$ 18.7 billion, with a 2016 annual forecast reaching US$ 81.6 billion – this would be 14.0% and 37.6% higher than the past two years’ returns.

Dubai Holding’s property unit, Dubai Properties Group, is expecting to finish work on stage 1 of its affordable housing Serena project within two years. The first of five phases will include 2-3 bedroom townhouses and 3-bedroom semi-detached villas. The project will be located on Emirates Road and will also include 100k sq ft of retail space, a clinic and swimming pools.

At the other end of the property spectrum, Damac has announced that it will build car lifts in its 4 million sq ft Aykon City. The development, next to Dubai Canal, will comprise two 30-storey luxury residential units, an 80-floor hotel, a 63-floor office building and an office tower with 65 levels.

Yet another shopping centre in Dubai – this week saw the opening of the US$ 109 million The Mall in Jumeirah, adjacent to the Burj Al Arab. Encompassing 81k sq ft of area, the centre will have 66 outlets, which have all been let, and basement parking for 200 vehicles.

According to Cluttons Dubai Office Market Bulletin, office rents have remained stable, as high demand persists to offset new supply. The report highlighted the fact that of the 22 submarkets analysed, 13 had remained unchanged, 2 had recorded decreases and 7 had registered notable increases during 2015.

The RTA has extended its deadline to the end of the month for developers to register interest in building five mixed-use towers above the Union Square metro station in Deira. In a bid to garner more interest from the private sector, there will be offers of a minimum revenue guarantee to participating companies.

Dubai World has signed two major contracts – with Dutco Balfour Beatty and BAM International Abu Dhabi LLC – to carry out work on its new Container Terminal 4 on reclaimed land in Jebel Ali Port. Phase 1 will be completed by 2018 and, by adding 3.1 million TEUs (20’ equivalent units), the port’s capacity will increase by 16.3% to 22.1 million TEUs, with a further 4.7 million TEUs on completion of phase 2 in 2020. Also this week, the port operator was selected as preferred bidder for operations at the Cypriot port of Limassol.

With 70 hypermarkets and 90 supermarkets in 14 regional countries, Majid Al Futtaim is planning its first of two Kazakhstan Carrefour hypermarkets – the first in Almaty to be followed by one in Astana. Last month, MAF announced a US$ 1 billion expansion plan for two malls in Riyadh.

Emirates has augmented its global position as the largest single player in sports sponsorship. Its latest deal, with the Los Angeles Dodgers, includes signage, a 70 client hospitality section and becoming the outfit’s official carrier. This is the airline’s first foray into baseball but it already has a growing US sporting presence, with sponsorship arrangements including New York Cosmos, US tennis Open and the US rugby team.

Having spent US$ 1.7 billion last year to acquire Dragon Oil, Enoc is again gearing up its expansion plans. The 23-year old state-owned company is to build a further 54 petrol stations in Dubai and increase its condensate capacity at its Jebel Ali refinery

It was no surprise to see that the Mercer’s 2016 Quality of Living Survey again rated Dubai as the leading ME city for expatriate living. However, its 75th position ranking, out of 230 cities surveyed, will baffle some observers. (Vienna, Zurich and Auckland claimed the top three spots, with Baghdad and Damascus at the other end of the scale).

Strangely, since fuel subsidies were removed last July, pump prices have actually decreased. Despite this anomaly, ratings agency Moody’s estimate savings from this are equivalent to only 0.5% of GDP, compared to the estimated 12.4% of GDP deficit from the lower oil prices.

The weakening market conditions, allied with low oil prices, have begun to impact on the local economy. Etisalat has curtailed plans to raise a 3-year, US$ 2 billion loan. Meanwhile the country’s central bank reported that its foreign assets dropped by 13.0% in January to US$ 80.9 billion, whilst overseas bank deposits decreased 30.0% to US$ 33.3 billion. Not surprisingly, the capital’s SWF, the second largest in the world, could lose 5.4% of its value in 2016 to US$ 475 billion.

Empower – owned by DEWA and TECOM Investments – has also stalled plans to go public, in the wake of adverse market conditions. The Dubai A/C provider reported impressive 2015 results with profit up 26.0% to US$ 141 million, whilst revenue was 12.0% higher at US$ 463 million. It still requires a further US$ 327 million for on-going expansion plans, of which 20% will be internally generated.

Once the darling of the local market, Arabtec has again returned disappointing results. Last year, it posted an annual loss – US$ 627 million – compared to a US$ 59 million profit in 2014. The Q4 loss of US$ 98 million fell short of analysts’ expectations and was a lot worse than the US$ 26 million deficit a year earlier.

The bourse opened Sunday at 3093 and nudged up 1.1% to 3124 by Thursday (25 February 2016). Bellwether stocks, Emaar Properties and Arabtec, were mixed – with the former lower by US$ 0.02 to US$ 1.53 and the latter up US$ 0.02 to US$ 0.31. Trading volumes on Thursday were well down on last week at 358 million shares, valued at US$ 105 million, changing hands, (cf 584 million shares for US$ 170 million, the previous Thursday).

Brent crude, having surged 14.0% the previous week, continued its upward trend jumping 3.5% (US$ 1.20) to US$ 35.48, whilst gold rose by US$ 8 to US$ 1,234, by Thursday (25 February) close.

Although it seemed a done deal last month, with a US$ 2.27 per share offer, J Sainsbury’s attempt to purchase Home Retail Group has been topped by Steinhoff International’s offer of US$ 2.47. The UK supermarket, 25.1% owned by the Qatar Investment Authority, was hoping that this sale would help in its on-line business and expand into new areas such as consumer goods.

On Tuesday, Standard Chartered announced abysmal results with an annual loss of US$ 2.36 billion, compared to a 2014 profit of US$ 2.51 billion. The bank, with 90% of its business in emerging markets, recorded an 87% hike in loan impairment losses to US$ 4.0 billion. It has not been helped by having to close most of its SME accounts in the UAE, regulatory infractions and senior management changes. To some outsiders it seems that the bank has lost its way and treated many customers with corporate disdain.

In contrast, HSBC came in with a 1.2% lower 2015 profit at US$ 13.5 billion but this included a US$ 1.3 billion Q4 loss – maybe a portent of the bumpy economic road ahead? The usual suspects – lower commodity prices and a slowing Chinese and global economy – were the drag factors for the weak results. Over the next two years, the bank hopes to slash its overheads by US$ 5 billion.The bank confirmed that it faces tax probes from several countries, including Indian authorities who are investigating citizens’ accounts in Switzerland and Dubai.

Over the past two years, Qantas has managed to surprise the aviation world as it transformed itself from an industry basket case to recording a record H2 profit of US$ 663 million – well up on the previous half year figure of US$ 264 million. Although lower fuel prices and the weaker AUD were prime factors for this turnaround, it must be noted that its arrangement with Emirates has seen the number of annual Australian passenger traffic to Europe surge fourfold to over 1.5 million.

The dire condition of the global dairy industry has badly hit Australian milk producers. Murray Goulburn – which buys 37% (3.6 billion litres) of the country’s total milk production – has seen annual profits sink by 34%. Consequently, there will be no relief for the “cockies”, as the price of milk solids will be at US$ 4.12 per kg – equivalent to US$ 0.31 per litre. For many, these prices are at best marginal and for many loss-making.

Following January’s HNA’s proposed US$ 6 billion acquisition of US-based Ingram Micro and Haeir’s US$ 4.5 billion agreement to buy GE’s appliance business, another Chinese-state enterprise is looking for overseas trophy assets. ChemChina is set to spend US$ 43 billion to buy Swiss pesticide and seed company Syngenta which gives the company a share value of US$ 465.

Meanwhile Taiwan’s Foxconn has agreed to pay US$ 4.4 billion for Sharp. Latest figures show that the Japanese electronics maker recorded a US$ 978 million 9-month loss to December 2015.

Although Japan is showing signs of moderate recovery there are still concerns about the impact of a slowing global economy, resulting in flat output and worrying export figures. A US$ 27 billion stimulus package will be introduced this month but whether this has any long-term impact remains to be seen. Sluggish consumer demand and low oil prices mean that Japan’s inflation rate remains stubbornly low.

It seems that a recent EU tax ruling may result in some companies leaving Belgium. One of that country’s tax schemes has been declared illegal, resulting in several multinationals having to repay hundreds of million US$. The 10-year old excess profit scheme allowed certain corporations to reduce their tax base by between 50% – 90%.

The IMF has estimated that last year, the lower oil prices cost the MENA oil producers as much as US$ 340 billion in revenues, equivalent to 20% of their combined GDP. Its Managing Director, Christine Lagarde, seems keen to introduce a tax regime to help increase government revenues in these troubled times. For example, she reckons a single digit VAT could net the equivalent increase of 2% in GDP and seems keen to see the introduction of taxes on corporate and personal income as well as on property. Low oil prices will not last forever and the country has done much better without tax (and external meddling) in the past – let the IMF worry about real economic problems elsewhere and Leave Us Alone!

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