Hazy Shade of Winter!

snow-rakEarly 2017 property reports seem to have different findings. JLL estimate that only 15k units were handed over last year and this was the highest annual number in five years. ValuStrat put this number even lower at 11k which was 33% of initial estimates of 33k at the beginning of 2016. Most reports seem to indicate that the 2016 market was at best flat but could not agree on the rates of decline. It did seem that lower cost housing was performing better and elsewhere price falls varied between different locations and different types of units (apartments generally holding up better than villas).

What is worrying are the differences and lack of agreement between studies on what is historical and factual data. If consultancies cannot agree on what has happened in the past, there is little hope of agreeing what will happen in the future.

There is a divergence of views on which way and when prices will move. Cluttons do not expect a recovery until at least the end of 2017, whilst Phidar Advisory believe that the market will remain subdued with a continuation of “further gradual softening”. Knight Frank stated that prices in the mainstream market fell 7% in 2015 and at a slower 5% rate last year, whist the falls in prime areas were at 4% and 5% in 2016. They now expect prices to rise from mid-year. In contrast, ValuStrat indicate that property prices had fallen 13.7% since their peak in 2014 but now expect a cyclical soft recovery stage. In the same camp are Core Savills, who have noted that prices have already started rising in the mid-market sector, and JLL, who forecast price rises in 2017. Now these are four of several firms that are calling the bottom of the market indicating that for Dubai property, the only way is up!

Arab Health should bring some joy to the embattled local hospitality industry, as organisers expect 120k visitors to attend the 4-day exhibition that ends today (02 February). The 5.1% increase in exhibitors to 4.4k indicates the fact that Dubai is now considered a world-class hub for the healthcare medical sector.

EY’s MENA Hotel Benchmark confirms earlier reports that Dubai maintains its position as the leading regional market despite most indicators heading south. The emirate boasts the highest occupancy rate (80%) and RevPar (US$ 200) but has seen 2016 average room rates and room yields fall by 7.8% to US$268 and 7.4% to US$ 200.

Riviera Group has launched its 7th project in Jumeirah Village Circle. The 22-storey, US$ 34 million building will house 144 apartments, with prices starting at US$ 157k, and two ground floor retail units. Completion of La Riviera Apartments is expected by the end of next year.

Al Shaya has signed an agreement with Nakheel to lease 100k sq ft of shop space in the upcoming Al Khail Avenue Mall. The Kuwaiti retail conglomerate has many well-known brands in its portfolio including American Eagle, Boots, Debenhams, Footlocker, Mothercare and PF Chang’s. The massive development, located in Jumeirah Village Triangle, will have 1.2 million sq ft of retail space and will house 350 shops, along with dining outlets and a cinema.

With 2017 revenue set to decline by 2.8% and infrastructure spending 26.6% higher, Moody’s expects Dubai’s US$ 680 million budget deficit, equivalent to 0.6% of GDP, to have little impact on public debt levels. It also expects the emirate’s GDP to grow faster than in 2016 – from 2.4% to 2.9%. Dubai has managed to cut its direct government debt levels from 33% to 25% over the past six years but the ratings agency expects this figure to nudge higher to 30% by next year. However, Dubai’s total public debt is relatively high at 128.7% of GDP – up from 113% over the past five years.

The local economy will receive a welcome boost when World Expo 2020 awards 47 construction contracts, valued at US$ 3 billion, this year. According to the IMF, the trade fair will result in GDP growth of over 5%.

With no new establishments opening this academic year, GEMS Education will only be recruiting up to 1.2k new teachers for the 2017/2018 school year (compared to 1.7k the previous year). The management company operates 47 schools in the UAE and 250 globally.

On Monday, the world’s leading optical and digital precision technology company, Olympus launched its new regional HQ, located in Dubai Science Park. The 2k sq mt facility will be responsible for 72 countries in MEA and will report to Hamburg-based Olympus Europa.

Also this week, printing and packaging company Delta Group opened a US$ 200 million, 250k sq ft plant in Dubai’s National Industries Park. The company has an 800 workforce.

Local delivery app Fetchr, that employs 1k in the region, is expected to finalise its Series B funding by the end of March; last June, the 4-year old Dubai-based start-up received the largest ever ME Series A funding at US$ 11 million from the leading venture capital (VC) firm in the world, New Enterprise Associates.

Although the number of 2016 cases heard by the Dubai International Financial Centre (DIFC) Courts was similar to a year earlier, the value of these, at US$ 1.6 billion, was 5% higher. Of this total, the DIFC Court of First Instance reported a 22% hike in case value to US$ 734 million.

DWC reported an 84.5% hike in 2016 passenger numbers to 851k, with Q4 up 39.9% to 248k; however, actual aircraft movements dipped 5.6% to 39k. Surprisingly freight only showed a marginal 0.8% rise to 898k tonnes. (Although IATA reported that 2016 regional freight volumes jumped 6.9%, and 11.2% in December, compared to a year earlier, the rate of growth for ME carriers was the lowest since the GFC).

Fuel prices went up yesterday for the second consecutive month – this time, Special-95 jumped 5.0% to US$ 0.515 per litre, with diesel rising 3.1% to US$ 0.545. This is in line with recent global oil price hikes.

Already with a presence in two South American countries – Columbia and Peru – Abraaj has bought a majority stake in a Chilean home design company, Casaideas. Founded in 1993, the company also has outlets in Bolivia and Peru.

Having seen a 3.2% increase in their levels of personal debt (including loans and credit cards) to US$ 11.6k, it now seems that UAE residents have started to tighten their financial belts, with average debt levels expected to decline. Furthermore, with banks having to account for falling deposit balances as well as to accommodate the commercial and public sectors, bank liquidity is tight. Latest figures indicate that the total of personal loans is US$ 118.3 billion, of which US$ 80.4 billion (68.7%) are for business reasons.

The UAE Central Bank confirmed that last year the country’s total foreign assets fell 8.9% to US$ 84.7 billion, as foreign deposits jumped 29.2% to US$ 40.3 billion, year on year.

If the current market rally continues to mid-year, it appears that Dubai Investments (DI) may well start IPOs for some of its subsidiaries, with Emicool top of the list. Meanwhile, the company posted a 9.8% hike in 2016 net profits to US$ 365 million, (including a US$ 51 million gain on the disposal of a subsidiary) as revenue surged 14.8% to US$ 845 million.

ICD, government-owned and a 12.5% shareholder in DI, also announced its third debt listing on Nasdaq Dubai – a 10-year US$ 1 billion sukuk. (This has strengthened the Dubai bourse’s claim to be the world’s largest exchange for sukuk listings with a current total listing of US$ 47.2 billion).

Within weeks, the parent company of Du, Emirates Integrated Telecommunications Co, will launch Virgin Mobile as the third operator in the country. Although its growth trend is heading upwards, Du has had to lay off staff in a cost cutting restructuring programme, resulting from increasing government royalty payments.

Nakheel posted a massive 13.2% hike in 2016 profits to its highest-ever mark of US$ 1.35 billion, with Q4 22.3% higher at US$ 260 million. The results were helped by growths of 70% and 50% in the developer’s retail and hospitality sectors. During the year, the company also repaid all of the outstanding US$ 1.17 billion of its trade creditors sukuk.

Majid Al Futtaim continues to go from strength to strength with a 9.0% hike in revenue to US$ 8.15 billion which drove a 8% increase in EBITDA  (earnings before interest, taxes, depreciation, and amortisation), to US$ 1.12 billion. The private Dubai family company has total assets valued at US$ 14.4 billion, with a net debt balance of US$ 2.6 billion.

Emirates Refreshments Co posted disappointing Q4 figures with a massive 92.3% dive in profit to just 3k, as 2016 profits dropped 16.4% to US$ 958k.

Tabreed reported a 6.0% increase in 2016 profit, with revenue rising at the same rate to US$ 349 million. The district cooling company had added a further 74k refrigeration tonnes (including Dubai Parks & Resorts) to its capacity in 2016 and last month acquired a plant servicing ICT’s Nation Towers in Abu Dhabi. 63 of the 71 plants operated by Tabreed are located in the UAE.

Although revenue showed a 2.4% hike to US$ 1.36 billion, flydubai posted a 68.6% fall in 2016 profit to US$ 9 million on the back of “a difficult pricing and operating environment”. Passenger numbers were 14.4% higher at 10.4 million, with the budget airline increasing the size of its fleet of 737-800 aircraft to 57 over the year

Aramex posted a massive improvement in Q4, with profits climbing 128.8% to US$ 36 million. Although the Dubai-based courier company also showed an 18.1% rise in revenue to US$ 316 million, it still maintains a cautious outlook on future prospects as economic uncertainties continue. Two important shareholders are Mohammed Alabbar (16.45%) and Australia Post (4.5%) – in October it established an e-commerce JV with this junior international shareholder.

Emaar Malls, 85% owned by its parent Emaar Properties – with the balance by retail investors – belied the current malaise in the retail sector by recording a 3.9% hike in Q4 profits to US$ 123 million and an annual 12.6% revenue increase to US$ 510 million.

The DFM opened Sunday at 3701 and, after another flat week,, lost 77 points (2.3%) to close Thursday (02 February 2017) on 3624. Volumes were slightly higher, closing the last day of the week, at 691 million shares, valued at US$ 283 million, (cf 601 million shares for US$ 266 million, the previous Thursday). Emaar Properties traded US$ 0.10 lower, to US$ 1.97, with Arabtec remaining flat at US$ 0.37. In January, all three indicators had headed north – the DFMI a tidy 3.2% higher at 3643, Emaar Properties up US$ 0.08 to US$ 2.02 and Arabtec a tad US$ 0.01 higher at US$ 0.37.

This week Brent Crude gained US$ 0.32 to close on $ 56.56. Gold also moved in the right direction with a 2.4% increase (US$ 29) at US$ 1,190 by Thursday (02 February 2017). For the month of January, Brent traded US$ 1.33 lower (2.3%) to US$ 55.49, whilst gold was US$ 61 higher (5.3%) at US$ 1,212.

It is reported that Royal Dutch Shell is to sell a large portion of its North Sea assets, including nine of its oil fields, to Chrysaor for up to US$ 3.8 billion. The Anglo Dutch energy colossus wants to focus efforts to streamline its portfolio, following last year’s US$ 45.8 billion acquisition of BG Group. It also reported 8% dips in both Q4 and 2016 profits to US$ 1 billion and US$ 3.5 billion respectively, even though prices had more than doubled over the past 12 months.

Despite taking a US$ 2 billion impairment charge, in writing down its value of oil and gas reserves, Exxon Mobil still managed to post a US$ 1.7 billion Q4 profit – a 40% decrease compared to the same period in 2015.

Q4 figures from Facebook were more than impressive as both revenue and profit surged – by 53.6% to US$ 2.3 billion and 131% to US$ 3.7 billion respectively. The world’s leading social network saw user numbers up 17% to 1.86 billion. However, a US court has found Facebook guilty of illegally using Zenimax computer code to launch its own VR headset and ordered a US$ 500 million payment to be made for this infringement.

Apple also reported strong Q4 figures with net sales up 3.0% to US$ 78.4 billion – its strongest Q revenue ever, following three successive quarters of declining revenue. Unit sales of the iPhone were 4.7% higher at 78.3 million, accounting for US$ 54.3 billion (69.3%) of the company’s turnover.

As expected, VW (with 10.3 million vehicle sales and including Audi, Porsche and Skoda) deposed Toyota (10.175 million) as the world’s top selling auto maker. This achievement is more remarkable considering VW has had to deal with the fall-out from the emissions-cheating software scandal which cost the company US$ 4.3 billion in fines and penalties, levied by the US Department of Justice.

For its nefarious role in a Russian money-laundering scheme, Deutsche Bank has been hit with a US$ 603 million fine by US and UK regulators. Illicit activity between 2011 and 2015 resulted in the illegal movement of some US$ 10 billion out of Russia.

Another financial institution in the news is HBOS with two former bankers, along with four so-called turnaround consultants, found guilty of bribery and fraud that saw customers and shareholders being fleeced of several hundred million US$. The scheme involved the bank recommending its clients to use a firm of consultants to help the business with their “experience and expertise”. The opposite happened with the “consultants” charging high fees and using their relationship with HBOS to bully business owners and in many cases strip them of their assets and take over ownership.

Ant Financial, the digital payments division of China’s Alibaba, has bought MoneyGram for US$ 880 million. The US-based on-payment firm has 350k global outlets, whilst the e-commerce giant has over 630 million users.

In a move that surprised the market, Tesco is to acquire Booker for US$ 4.6 billion. The low profile food wholesaler operates the UK’s biggest cash and carry network, with 200 branches and also owns store chain brands, including Budgens, Londis and Premier, which cover over 5k sites. The market acted positively with Tesco shares up 9% and Booker surging 16%.

Sinking DVD and home entertainment sales have seen struggling Sony posting a US$ 1 billion write down in its accounts. To make up for any loss because of this impairment charge, the Japanese conglomerate will divest shares in its medical web service M3.

The Australian economy took advantage of improving commodity prices, with the latest quarter’s terms of trade surging 12.2%, as export prices soared by 12.4% whilst imports were up by a marginal 0.2%. For the year ending December, both figures were higher by 12.4% and 4.6% respectively. Despite global political and economic uncertainty, the “lucky country” continues to confound observers; the latest ANZ-Roy Morgan Australian Consumer Confidence Survey has a reading of 118.1 – well above the 100-point division between pessimism and optimism.

Although the Thai economy is being hamstrung by political uncertainty, its economy grew by 3.2% on the back of tourism (which accounts for 11% of GDP and saw a 9.2% increase in visitor numbers to 32.6 million) and further investment in military government projects.

The Bank of Japan has upgraded its October growth forecasts for the country from 1.0% to 1.4% and from 1.3% to 1.5% for fiscal 2017. It was also confident the inflation rate would reach its 2.0% target by fiscal 2018. Japan’s exports and manufacturing data indicate an economic upturn driven by a weaker yen, improving commodity prices and confidence returning to the global economy. Like the rest of the world, it has to closely monitor what is happening with Trump-era monetary and economic policy, in Europe with Brexit and debt issues in Greece, Italy and other countries, as well as geo-political turmoil in many troubled hot spots.

With inflation moving higher towards its target level of 2.0%, and unemployment at its lowest level in almost eight years (but still at 9.6%), there is every chance that the ECB may curtail its QE programme sooner than planned. It currently stands at US$ 86 billion a month to be scaled back to US$ 65 billion in April, prior to closing at the end of 2017. Q4 growth came in at 0.5%, pointing to a 1.7% annual rate. However, the Brussels bureaucracy will have nagging worries on whether events, including Brexit, Trump policies and elections – in France, Germany and Netherlands – could scupper further short-term progress.

In Q4, the UK economy continued to amaze the Remain camp by expanding a further 0.6%, driven by confident consumer spending and a burgeoning service sector. Despite fake reporting and scaremongering prior to the Brexit vote, the country grew by over 2% and the feared slowdown has not materialised. Indeed even Mark Carney of the Bank of England has upgraded his growth forecast from November’s 1.4% to an updated 2.0% less than three months later.

As he had already indicated pre-election, President Trump has called on the pharmaceutical sector to cut “astronomical” drug prices, as well as imploring the industry to manufacture more of their products in the US. In return, he has promised to cut taxes and speed up the approval protocol for new medicines.

The Federal Reserve kept interest rates on hold, still in the range of 0.5% to 0.75%, having raised the benchmark indicator by 0.25% in December 2016 – only its second increase in ten years. With near full employment and the prospect of higher inflation, hitting 2% this year, (as the president is on record indicating tax cuts, higher public spending and more deregulation), the Fed appears to be bullish on the country’s economy.

The National Centre of Meteorology and Seismology has announced that a deep low pressure over the UAE this weekend will see temperatures dropping to below zero degrees on the mountains and the risk of snow in parts of the northern emirates. It is a pity that both the Dubai Tour Cycling and the Dubai Omega Desert Classic (including one Eldrick Tont Woods) will be impacted by the inclement weather and blowing sands – this weekend, the country is experiencing a Hazy Shade of Winter!

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