State of Shock

Emaar has launched its latest development – Harbour Gate. The new residential estate, located close to The Tower at Dubai Creek Harbour, will comprise 491 1-3 bedroom apartments, six penthouses and six townhouses.

Jumeirah Golf Estates’ latest launch of its Alandalus Townhouses, a gated community with 2-3 bedroom units, sold out within three hours on Saturday; starting prices were at US$ 354k. The development, which should be ready for handover within 18 months, forms part of a mixed use community, including 715 apartments and a hotel.

Nakheel announced that the lowest Deira Mall construction bid (of the three received) was US$ 1.14 billion. The massive development – part of the Deira Islands project – will encompass 4 million sq ft of leasable space with 1k outlets, an 8.4k multi-storey car park and an atrium with a retractable roof. The developer is also in discussions with two potential JV partners for new resort hotels.

Despite a US$ 3.7 billion projects under construction pipeline, expected to almost double to US$ 6.9 billion during the year, Nakheel does not expect to issue bonds or sukuk to raise finance. Furthermore chairman, Ali Rashid Lootah, is not planning to take the company public.

S&P has indicated that Dubai is in danger of losing its enviable position of “shoppers’ paradise” in the wake of an appreciating dollar and increased retail prices. The situation has been further exacerbated by the fact that sterling has fallen 17% since Brexit and other currencies have also dropped, albeit on a smaller scale, including the yuan (7%) and euro (3%). The sector is being hit by a drop in individual consumer spend with footfall remaining stable, despite the 5% increase in tourist numbers. To add more worries, retail space will surge by a further 30% over the next three years to 3.9 million sq mt.

A new entity, Falcon Golf, will take over the management of Dubai’s three main tournaments – Race to Dubai, Omega Desert Classic and the Ladies Masters. Peter Dawson, former CEO of The R&A, will head the organisation which has also been tasked to increase golf tourism to the emirate and enhance local grass roots participation.

With the new Education Cost Index set at 2.4% (down from last year’s 3.2%), private schools can hike 2017 fees by up to 4.8%. Schools older than three years will be eligible to apply for increases with those ranked as excellent (up to 4.8%, compared to 6.4% last year), very good (4.2%), good (3.6%) and others (2.4%). New private schools have to maintain fixed tuition fees for the first three years of operation.

With a 14.0% hike in registered companies to 1,648, the DIFC posted a 2016 profit of US$ 115 million. The centre’s workforce increased by 9.0% to 21.6k during the year.

Empower is still considering the benefits of an IPO when market conditions improve and is also in discussions to acquire more UAE cooling firms. It currently handles 69 district cooling plants in the emirate and has seen a 13.6% hike in numbers to 920 buildings using its services. The company expects 2017 revenue to top US$ 600 million, with a 30.8% jump in profits to US$ 184 million. It is expected that projects under construction will increase by 38.5% to US$ 245 million this year.

Dubai Land Department has issued strict new guidelines for brokers trying to sell overseas properties to residents. Under the threat of legal action, brokers will have to obtain official on-line documentation, submit the marketing contract to authorities and a duly attested title deed, along with a letter from the country of origin detailing their property ownership mechanism.

The UAE’s December’s inflation rate recorded a massive 1.4% monthly fall to only 1.2%. Housing / utility costs were 1.6% higher for the year, whilst food was up 0.5%; they account for 34.1% and 14.3% of consumer expenses respectively. These low figures are expected to continue well into 2017.

In January, there was an 18% hike in UAE government deposits with local banks, to US$ 50.6 billion year on year, but a marginal 0.6% fall, month on month. There were also monthly falls in cash at banks, down 15.6% to US$ 3.5 billion, and issued currency by 0.5% to US$ 21.0 billion.

The Central Bank has issued new guidelines aimed at getting banks to lend more to SMEs – a sector that accounts for 60% of the country’s GDP. It does appear that many such companies have been receiving a raw deal from the country’s financial institutions, as certain banks have “pulled the plug” on clients or have raised their fees. On the other side of the coin, some banks have taken hits on defaults and seen their profits plummet as impairment levels have risen.

The number of new local mobile subscribers is growing quicker than the population, as latest figures show the number jumping 11% (1.96 million) to 19.9 million. Amazingly, the number of fixed line users also rose by 1.3% to 2.3 million, whilst internet users were up 5.7% to 1.3 million.

One local sector is looking at a positive 2017. After years of poor results, the 29 listed UAE insurance companies turned a 2015 total loss situation of US$ 32 million to a US$ 313 million profit last year. Now higher revenue streams – including compulsory medical insurance for everyone, with a UAE residency visa, and higher rates for vehicle insurance – point to a buoyant twelve months; a potential 12% hike would see turnover climb to US$ 6 billion. The three largest companies – Oman Insurance (US$ 970 million), Orient (US$ 708 million) and Abu Dhabi National (US$ 649 million) – accounted for 43.8% of the industry’s total 2016 turnover of US$ 5.3 billion.

Kuwait’s Al Mazaya Holding acquired a further 0.1% (100k shares) of its subsidiary First Dubai for Real Estate Development to bring its total ownership to 7.21%.

Following a London arbitration ruling, Dana Gas has had to revise down its unaudited preliminary results, which had showed a US$ 33 million profit, to a US$ 88 million loss. The decision, involving a dispute with the Kurdistan Regional Government, resulted in a one-time unrealised interest adjustment of US$ 121 million.

According to its chairman, Hussain Sajwani, Damac expects 2017 revenue to reach US$ 1.91 billion with profit remaining flat at US$ 1 billion. The developer will continue to focus on the UAE and GCC market sectors.

Over the past ten days, since announcing a 2016 loss of US$ 929 million and a Q4 deficit of US$ 804 million, Arabtec has seen its share value plunge 36.4% to US$ 0.26. On Wednesday, it received initial agreement from the regulator to recapitalise the company by a US$ 409 million rights issue. (This week the developer awarded a US$ 223 million contract to National Marine Dredging Company for work on a project in the Maldives).

The DFM opened Sunday at 3651 and closed 0.5% down on Thursday (23 February 2017) at 3634. Volumes were again significantly lower, closing the day at 349 million shares, valued at US$ 120 million, (cf 442 million shares for US$ 211 million, the previous Thursday). Emaar Properties traded US$ 0.01 weaker, to US$ 2.07, with Arabtec, having shed 23.0% the previous week, again closing US$ 0.02 lower at US$ 0.26.

By Thursday, Brent Crude had nudged US$ 0.07 higher to close on $ 55.81, with gold continuing its recent upward moves, with a 0.9% increase (US$ 11) to US$ 1,240 by 23 February 2017.

Russia now holds the number one position as the world’s largest oil producer, with an average December daily output of 10.49 million bpd, overtaking Saudi Arabia’s 10.46 million bpd; the US trails in third place at 8.9 million bpd.

After a positive start to this year, following its disastrous 2016 Galaxy Note 3 launch, Samsung was hit with news that its heir apparent, Lee Jae Yong, was arrested on corruption and bribery charges connected to an on-going political scandal.

Kraft Heinz, the US Warren Buffet food group, is no longer pursuing its US$ 143 billion bid to acquire rival Unilever. Strangely, this announcement came just two days after it had publicly confirmed its interest in the deal, after both Mr Buffet and Unilever’s Jorge Paulo Lermann decided that a protracted public battle could be detrimental to both entities.

Amazon will add a further 25% to its UK workforce, as it plans to hire a further 5k employees to signify its long-term commitment to post Brexit UK. This follows recent announcements by Facebook and Google that they will be adding a further 500 and 3k employees this year, following Amazon increasing its payroll by 3.5k in 2016.

A corruption scandal in Spain has seen the king’s brother-in-law, Inaki Urdangarin, convicted whilst his wife Princess Cristina was cleared in a landmark trial that reflected the country’s anger at abuses by the country’s elite. The former Olympian was jailed for six years on counts including fraud and influence peddling.

According to the OECD, Q4 growth in the developed economies fell 0.1% to 0.4%, quarter on quarter. Growth accelerated in Germany (0.4%) and France (0.4%), remained stable in the UK at 0.6% and fell in the US (0.5%), Japan (0.2%) and Italy (0.2%). For the year, total growth of 1.7% was lower than the 2.4% in 2015.

The Bank of Japan maintained its minus 0.1% interest rate on current accounts that financial institutions maintain at the central bank. Japan’s manufacturing PMI expanded at its fastest rate in nearly three years, topping 53.5 in February (52.7 a month earlier), driven by increases in employment, new orders and output.

Overall, eurozone private sector growth surprised the market with the IHS Markit composite output index up 1.6 in February to 56.0 – its highest point in nearly six years. Both manufacturing (with a PMI of 55.5) and services (55.6) headed north with job creation, order book growth and business optimism riding the crest of the wave.

The two major eurozone economies started the year on the back of improving economic data. In Germany, the manufacturing Purchasing Managers’ Index recorded its highest reading – at 57.0 – in almost six years with the services PMI up 1.0 on the month to 54.4. If this were to continue for the rest of Q1, growth will reach an impressive 0.6%.

Meanwhile France saw both its manufacturing PMI (at 53.8) and services PMI of 56.7 well above the 50 reading which delineates between expansion and contraction. There were marked improvements, with rises in new orders and employment at their highest since mid-2011, as service providers led this growth drive.

Over the Channel, the UK January budget balance of US$ 11.7 billion was the highest in over sixteen years. YTD, the public sector net borrowing (excluding banks) fell 21.6% to US$ 61.3 billion – its lowest level in nine years. Over the past twelve months, the public sector net debt has increased 5.8% to US$ 2,092 billion, equating to 85.3% of the country’s GDP.

Having been caught carrying out dangerous stunts in City Walk during the recent wet weather, a local driver (and his passengers)  now have to spend four hours a day for the next month cleaning Dubai streets. Apparently, on the instructions of HH Sheikh Mohammed bin Rashid Al Maktoum, this will become the norm for all similar offences in the future as part of their community service sentence. No doubt, there are some racers now seeing the streets from a different perspective, sweeping them in a State of Shock!

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