Can’t Get Enough!

mclaren-carBeing Dubai, it was no surprise to see two property reports, with different conclusions, this week. Knights Frank had a slightly positive summary that the sector is heading for a soft landing, with prices remaining flat in Q4 followed by a likely increase in 2017. However, EFG Hermes is slightly more bearish predicting a 5% decline in the coming months before stabilising later in 2017. What is interesting is that the respected Egyptian investment bank expects 33.5k units handed over before 2019 (despite an estimated pipeline of 74.2k before the end of 2018). If the emirate continues to grow at its current 6% level, Dubai’s population will have increased by 500k; this begs the question – where will the newcomers live?

The Abu Dhabi developer, Bloom Properties, announced that it has already sold 75% of its mixed-use project in JVC. The twin towers, with 686 apartments, will be linked internally by four podium levels. Prices start at US$ 98k, with completion date by Q1 2019.

Wednesday saw the launch of the US$ 68 million Azizi Shaista Residence project. Located in Al Furjan, the 12-storey tower, housing 284 units, will be completed by 2018.

Originally launched in 2014, on a 1.3 million sq ft site, Union Properties’ five-tower Vertx Motor City project is expected to finally break ground within nine months. The developer forecasts the final cost to be in the region of US$ 327 million; no completion date has been given. Meanwhile UP’s other major developments, the 269-unit Oia Residences, costing US$ 123 million, is about 30% complete, whilst the 210-villa US$ 185 million Green Community West project is 40% finished.

Meanwhile, Dubai Investments Real Estate Company will soon launch its Mirdif Hills project of 1.25k residential units, 128 serviced apartments, a 120-key hotel and a hospital, along with the usual outlets.

There is no doubt that more affordable projects are coming into their own, with the latest example being studio apartments in Dubai South, starting at US$ 76k. Located in The Pulse cluster, within the Residential District, sales will start later in the month, with a slated 2019 handover date.

GEMS becomes the second educational facility, following the University of South Wales, to sign an agreement to establish a presence in Dubai South. It will be located in one of 8 key areas – the Residential District – which will house two communities, The Villages and The Pulse.

Managed by Emirates NBD, Emirates Real Estate Fund has acquired Binghatti Terraces – a 10-storey residential building in Dubai Silicon Oasis; with 201 residential units and 5 retail outlets, annual rental income is US$ 4 million. No information was available on the sale price but the fund has already invested US$ 163 million in local realty over the past two years and has an asset portfolio of some US$ 410 million.

As an initial step to opening 45 outlets in the GCC, the 43-year old US brand, Smoothie King, has teamed up with Al Ghurair Retail to open its initial Gulf venture in the BurJuman Mall. This is the UAE family’s first foray into the food and beverage sector. The Al Ghurair Group operates in 20 countries and employs 70k in the region, with interests in a variety of sectors, including construction, realty and retail.

Emirates is set to introduce “minimal” seat selection charges for economy class passengers, booking Special and Saver fares, who wish to reserve seats 48 hours ahead of their flight. The fee is dependent on the flight’s duration and will range from US$ 14 – US$ 41 (children over 2 half price).

The RTA has reported that, in H1, there was a 4.6% increase to 70.7 million users on its 1.54k bus transport system.

Emirates National Oil Company has awarded an engineering procurement and construction contract to French company Technip, which will see a 50% expansion to its Jebel Ali refinery. The ENOC contract is valued at about US$ 1 billion and will increase capacity by 70k bpd to 210 bpd.

The former head of the Ras Al Khaimah Investment Authority, Khater Massaad, has been detained at Jeddah airport, under a RAK government arrest warrant. Last month, it was reported that talks between both parties in relation to “global embezzlement and mismanagement of US$1.5 billion” had broken down. Last October, Massaad, who ran RAKIA from 2007 to 2012, was tried in absentia and found guilty of corruption and fraud – claims which he has refuted.

Ratings agency S&P has forecast a slowdown for the local banking sector and expects 2016 regional growth to fall from 10% to 6%, and to dip slightly further in 2017, as the impact of low oil prices take effect. The subsequent lower liquidity will see profits fall, as government oil revenues deposited into the banking system move lower, and cost of funding shifts higher.

Troubled Gulf Navigation Holding has managed to cut its debt by 41.7% to US$ 21 million and expects to consolidate all its borrowing by year end. This will see its 6-year old dispute with disgruntled creditors come to somewhat of a happy ending and help the shipping company regain some lost investor and consumer confidence.

Dubai Aerospace Enterprise has acquired an 80% stake in Jordan Aircraft Maintenance from the Abraaj Group; no financial details were available.

Dubai’s inflation level nudged 0.38% higher, month on month, in August with an annual 2.50% rate. With YTD inflation at 2.40%, education and utilities continue to be the main drag factors – up 6.42% and 4.69% respectively.

It is reported that the emirate is discussing a US$ 2.5 billion loan (a US$ 1.4 billion European Export Credit facility and US$ 1.1 billion unsecured loan backed by the Dubai government). The funds will be used to finance the planned 15 km metro extension to the Expo 2020 site, to be built by an Alstom-managed consortium who were awarded the US$ 2.9 billion RTA contract in July.

With this week’s Emaar Properties’ US$ 750 million sukuk on Nasdaq Dubai, the value of the 14 new issues this year comes to US$ 10 billion, with a total sukuk value of US$ 45.5 billion now listed on the local bourse.

The DFM opened the week at 3482 and gained 32 points to close on 3514 by Thursday (22 September 2016). Volumes, on the last day of trading, were marginally higher at 267 million shares, valued at US$ 105 million, (cf 222 million shares for US$ 71 million, the previous Thursday). Bellwether stocks, Emaar Properties remained unchanged at US$ 1.95, with Arabtec also flat at US$ 0.41.

Having lost US$ 3.40 the previous week, Brent crude continued its downwards trend, with a marginal US$ 0.27 fall to US$ 46.32; gold moved in the other direction, US$ 27 higher to US$ 1,345 at Thursday’s (22 September 2016) close.

OPEC, supplier of about 40% of global oil, has seen its 14-members’ production levels creep above the 33 million bpd mark and may call a meeting in Algiers next week, following the International Energy Forum conference. In order to steady prices and stabilise supply, the cartel would be looking at ways to shave about 1 million bpd. Meanwhile, latest weekly figures show that the US crude stockpile fell by 6.2 million barrels to 505 million, as usage of 16.6 million bpd was 941k barrels higher than the 5-year average.

China dominates the global steel market and has seen its annual production expand 12-times since 1990 to over 822 million tonnes – this despite 2016’s demand expected to be only 672 million tonnes. In a bid to overhaul the sector and to cope with overproduction problems, two of the country’s largest steel companies, Baostel and Baowu Iron and Steel, are planning to merge to form China’s largest steel company that will produce 60 million tonnes; it will become the world’s second largest behind Luxembourg-based ArcelorMittal.

There was an interesting development this week with reports that Apple are considering a significant US$ 1.5 billion investment in UK luxury carmaker, McLaren. It does seem that the US tech giant is keen to enter this sector, having recently acquired a US$ 1 billion share in Didi Chuxing, the Chinese ride-sharing service.

Three years ago, Microsoft bought back US$ 40 billion of its own stock and now it is in the market again to do exactly the same; the process should be completed by the end of the year.

It seems that Deutsche Bank is not happy with being fined a massive US$ 14 billion by the US Department of Justice for its fraudulent role in mortgage-backed securities. Other major banks have already taken their punishment, including BoA (US$ 16.7 billion), JP Morgan Chase (US$ 13 billion), Goldman Sachs (US$ 5.1 billion) and Citigroup – US$ 7 billion, after being asked to pay US$ 12 billion; who is benefitting from receipt of these penalties? In Q2, the bank posted a 67% decline in profits and in July, one of its US operations failed a stress test by the Federal Reserve.

The other business sector going through a rough passage is the motor vehicle industry. Many cars have been subject of recalls, for a variety of reasons but faulty airbags being the predominant cause. Fiat Chrysler is the latest recalling 1.9 vehicles, following a reported three associated deaths. This comes three months after Toyota’s June recall of some 1.4 million vehicles for the same reason, with most other car manufacturers affected; these include Honda (1.7 million), Ford (2.0 million), Chevrolet (1.9 million) and Mercedes Benz (1.0 million). With the number of potentially faulty air bags now exceeding 100 million, it is little wonder to see their maker, Takata, up for sale.

Having already set aside US$ 18 billion to cover legal costs, over its emissions scandal, VW is now facing further claims, totalling US$ 9.1 billion, from 1.4k German investors. In the US, the German carmaker has already admitted guilt and paid US$ 10.2 billion to settle only some of the claims.

The UK car industry continues to confound analysts as 109k units were built in August – a 9.1% increase from a year earlier and the largest August number in 14 years. More importantly, exports continue to impress – 9.1% higher in the month and 13.3% YTD.

A recent report by Swiss-based Bank for International Settlements paints a worrying picture of the Chinese banking system. It estimates that the country’s Q1 credit-to-GDP gap of 30.1% is at record highs and far above the 10% mark, associated with banking risks. The possibility of a major financial crisis, within three years, is on the cards, if steps are not taken to ensure that bad loans and bond defaults are restricted by closely monitoring the ballooning borrowing in both the official and larger shadow banking sectors. (It has been estimated that banks there have written off more than US$ 300 billion in bad loans since 2013).

The City of Melbourne has leased its port for US$ 7.3 billion to the Lonsdale consortium for 50 years; this is a lot higher than initial estimates of US$ 5.2 billion. 10% of the receipts will be spent on infrastructure projects.

The value of Australia’s 9.7 million residences now tops US$ 4.5 trillion with the average price up 3.0% on the year to US$ 467k. Although house prices in mainland cities (except Perth and Darwin) have risen by 8% over the past year, the Reserve Bank of Australia appears to show little concern about a property bubble. At their recent meeting, which also pointed to no possibility of an imminent cut in rates, the RBA indicated that the housing market had actually weakened over the past 12 months. To the outsider, this seems a dangerous conclusion, as the sector is well past the frothing level, with home loans accounting for the bulk of local bank assets.

Controlling 75% of the market and with assets four times the size of the country’s economy, Australia’s Big 4 banks – ANZ, CBA, NAB and Westpac – and Macquarie find themselves in a potentially damaging legal case, with other major global players, in New York. They all have been accused of manipulating the BBSW (bank bill swap rate) benchmark between 2010-2012 and earning themselves millions of dollars in illicit profits. (Even Australia’s Securities and Investments Commission has started civil cases against three of the Australian banks for “unconscionable conduct and market manipulation” and rating agencies have cut their outlook on the country’s banking system to “negative”).

The OECD’s latest report provides grim reading for the UK economy, as it slashes 1% off its growth forecast, citing Brexit uncertainty – along with lost trade – and the dismal global economic environment. Its latest estimates point to a 1.8% growth this year, followed by a weaker 1.0% in 2017, compared to globally – 2.9% and 3.0% – its lowest annual growth rate since the GFC. Like the IMF, such reports should be taken with a pinch of salt.

The EU has fallen foul of the World Trade Organisation who has ruled that Airbus has been receiving billions of dollars in subsidies from the bloc. Rival Boeing has complained that these payments are illegal and have cost many US jobs and lost sales opportunities; now they expect to receive up to US$ 10 billion in annual retaliatory tariffs. Meanwhile, Airbus is expecting to appeal whilst awaiting the WTO’s decision on their similar complaint against Boeing.

The Bank of Japan continues to tinker with its largely unsuccessful stimulus programme in yet another attempt to kick-start the flagging economy. It has maintained its US$ 655 billion monthly asset purchases programme, including 10-year government bonds, which it will try to stop dropping into negative territory, and will continue in its push to see inflation top 2%. This will not be an easy task when latest trade figures show a US$ 184 million deficit, with year on year imports and exports down 17.3% and 9.6% respectively.

There was disappointing US August residential construction data with housing starts falling 5.8% to an annual rate of 1.14 million units, compared to 1.21 million a month earlier. Furthermore, building permits surprisingly dipped by 0.4% to 1.14 million. As expected, the Federal Reserve did not move on interest rates, so that investors continued to fill their boots on the global bourses and the greenback lost some of its recent impetus. However, as US growth is beginning to pick up, after a sluggish start to the year, a 0.25% December rate hike, after the presidential election, is all but inevitable.

UK bonuses reached record highs last year, totalling a mouth-watering US$ 59 billion – a figure that was up 4.4% year on year – and accounting for 6% of total remunerations; interestingly, this figure came to 22.7% in the financial and insurance sectors. Legally or otherwise, those bankers Can’t Get Enough!

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