Only Fools Rush In

The latest CBRE report paints a dismal picture of the Dubai housing market with a Q1 1.0% contraction in quarter on quarter rentals, as the equilibrium between increasing supply and restrained demand widens. Even more sobering is the latest outlook from Cluttons with sales prices in certain locations plummeting, including a 12-month 25% slump for Burj Khalifa apartments, followed by falls for Hattan villas at The Lakes (13.5%) and Arabian Ranches (12.6%), with Palm Jumeirah villas and apartments down by 12.3% and 11.0% for the year. Overall villa prices have slipped 6.8% with apartment values faring worse – down 8.5% over the past twelve months. If you want to find reasons for the disappointing numbers, look no further than Brexit, Donald Trump, oil prices and a sluggish global economy.

Meanwhile Core Savills noted a price decline in prime Dubai locations, whilst the more affordable areas nudged higher. One significant point made was that the property consultancy now expects 2017 deliveries to come in at 18k units – somewhat lower than their earlier 36k forecast (Q1 saw only 3.1k released onto the market). There were mixed results ranging from 7% falls in Jumeirah Village, in contrast to 5% year on year growth in the Meadows and The Springs.  Rentals seemed to fall across the board with little prospect of any improvement until 2018; apartments saw decreases of 7% in The Views and Discovery Gardens, 5% in The Greens and 4% on The Palm, with villas there down by 9%.

There will be similar reports out in the coming weeks. No doubt their  historic findings will all differ and that begs the question – if they cannot produce accurate historic data, how can the general public rely on their forecasting?

Dubai Land Department recorded impressive increases in both the number and value of Q1 real estate transactions – by 45.0% to 20k and 40.8% to US$ 21.0 billion, compared to the same period in 2016.

Last year overseas investors, from outside the Arab region, cut back on their spending in Dubai realty – down 41.0% to US$ 12.0 billion – with the number of non-GCC investors down 35.0% to 22.8k. The three main investing countries were all down – India by 42.3% to US$ 3.3 billion, Saudi Arabia by 15.7% to US$ 2.2 billion and UK by 46.7% to US$ 1.6 billion.

However, Dubai’s commercial sector has by and large weathered the storm, with the average Q1 rental price in prime areas remaining firm at US$ 523 per sq mt. Secondary rentals have softened, with marginal 1% falls to US$ 291 per sq mt.

Azizi Developments have awarded Belhasa Projects the tender to build three residential towers (2*20 floors and the other 18-storey) in Dubai Healthcare City. This development, encompassing 1.9k  units, follows an earlier one that brings the developer’s total spend in this particular cluster to US$ 436 million.

Dubai Properties has announced the first phase of the launch of Mudon Views which will comprise a range of 1-3 bedroom units in two buildings.

AccorHotels’ latest brand, MGallery, will open on The Palm Jumeirah this summer. The 255-room Retreat Palm Dubai – MGallery By Sofitel is the first such property in the ME and will be a wellness resort, with the emphasis on healthy food, along with its own lifestyle consultants and nutritionists. This will become the Palm’s 13th hotel, following Friday’s opening of The Viceroy Palm Jumeirah Dubai; a further 22 are under construction.

The newest addition to the Rotana portfolio will be the 54-storey Sabah Rotana in Sufouh Gardens, in conjunction with RSG International. The five star hotel and serviced apartments, with 534 keys, 220 of which will be for the hotel, will open in Q2 2020.

Nakheel has awarded a US$ 37 million contract to Al Ghurair Contracting and Engineering Works LLC to construct their second hotel in Dragon City. The 304-key, 8-floor Premier Inn, the latest in the developer’s 16-hotel portfolio, will be ready by 2019.

The design of the focal point of Expo 2020 was unveiled this week. Al Wasl (the former name for Dubai, with an English translation of “connection”) Plaza, 150 mt in diameter, will be the centre point of the 4.4km site and connect the three thematic districts – Mobility, Opportunity and Sustainability. The plaza will have a 65mt high domed trellis which will act as an immersive 360-degree projection surface.

According to the Dubai Chamber of Commerce, on-line shopping accounts for just 3% of the emirate’s total retail spend but a double digit annual growth is on the cards for the coming years. At a CAGR (compound annual growth rate) of 4.9%, the country’s total retail sector will top US$ 71.0 billion, from its 2016 total of US$ 56.6 billion, by 2020. Last year saw a further 250k sq mt of retail space added – its biggest total since 2010 – whilst estimates are for an additional 750k sq mt over the next two years.

Tuesday saw the opening of the five-day World Retail Congress in Dubai, attended by some 1.5k delegates. With the sector having a tough time, as traditional outlets continue to lose an increasing amount of business to e-commerce sites, the 11th annual meeting will have a lot to discuss.

Orbi, a development between SEGA Holdings Co and BBC Worldwide, is set to open in City Centre Mirdif. The MAF Group has established the new multi-sensory recreational facility and interactive nature project which will feature a custom built theatre and innovative audio visual technology.

Dubai Mall will be home to Apple’s third UAE store (and second in Dubai), in addition to its two retail outlets at Dubai International’s Terminal 3.

It is reported that Dubai is ranked 7th of worldwide cities attracting foreign investment, with a total of US$ 9.9 billion. With 247 new investment projects last year, the city is ranked third, behind London and Singapore, for the total number of new initiatives. 59% of the projects were financed from the US, UK, India, Germany and Italy.

Despite the doom and gloom merchants thinking otherwise, there is no doubt that the local economy is picking up momentum as the UAE’s March PMI rises two notches to 56.2 – its highest level in 19 months. Factors behind the uptick include a record rise in stocks of purchases, along with notable increases in output and new orders.

Having opened an office in Qatar a decade ago, Sotheby’s has finally a presence in Dubai. The London-based auction house has followed its rival Christie’s to the city. It is hoping that this move may improve its financial position that has seen 2016 revenue and profits both dipping – by 18.1% to US$ 335 million and 30.3% to US$ 99 million respectively.

Following last month’s resignation of its long-standing chairman, Mohammed Abdullah Al Gergawi, it is reported that both its Chief Executive, Fadel Al Ali, and vice chairman and managing director, Ahmad Bin Byat, have left Dubai Holding, the Ruler’s investment vehicle. The newly appointed chairman, Abdulla Al Habbai, will be in charge of managing a massive US$ 35 billion asset portfolio in more than 20 countries.

It seems that Damac’s move to establish its own mortgage department has already paid dividends, with the developer announcing that US$ 163 million of facilitating financing for its own properties has occurred to date. Damac is the first luxury developer to introduce this one stop shop imitative to support its client base.

Having made a US$ 200 million 2016 loss, and ending the year with a negative cash flow of US$ 83 million, the embattled Dubai contractor, Drake & Scull, has embarked on a capital raising exercise. Over the coming weeks, it hopes to generate a much needed US$ 245 million from a US$ 136 million cash injection from Tabarak International, US$ 82 million from a development sale to Omniyat and a US$ 27 million rights issue.

Marka is one of the last Dubai-listed companies to announce their 2016 results, posting an annual loss of US$ 41 million, driven by debt service levels and impairment charges related to goodwill. Annual revenue at the country’s first retail-focused listed company, with 47 mixed-use outlets, surged nearly 37% to US$ 80 million.

The DFM opened Sunday at 3480 and recovered, gaining 86 points to end the week 2.5% higher by Thursday (30 March 2017) at 3566. Volumes were again relatively low, closing on Thursday at 266 million shares, valued at US$ 88 million, (cf 147 million shares for US$ 72 million, the previous Thursday). Emaar Properties gained US$ 0.06 to US$ 2.04, with Arabtec also in front, up US$ 0.02 at US$ 0.26. For the month of March, the bourse shed 4.1% to 3480, with Emaar US$ 0.05 lower at US$ 1.98 and Arabtec by US$ 0.01 to US$ 0.24.

By Thursday, Brent Crude continued to regain recent losses, being up US$ 1.93 (3.6%) to close on US$ 54.89, with gold higher (US$ 8) at US$ 1,253 by 06 April 2017. For the month, both Brent and gold fell – by 5.4% to US$ 53.53 and US$ 2 to US$ 1,252.

An indicator that the production cuts agreed by producers are beginning to take effect sees crude stockpiles declining. An ongoing overhang of some 285 million barrels has seen flat oil prices but a recent Morgan Stanley report has indicated that such stockpiles have fallen by 72 million barrels so far in 2017. With the likes of Iraq and Russia well on track to meeting their quota cuts of 210k bpd and 300k bpd, it seems that prices will continue their upward trend which have surged more than 20% since mid-November.

Tesla announced that its latest quarterly vehicles deliveries topped 25k – a 70% jump on Q1 2016 – and comes after a Q4 9.0% fall because of production problems. The 14-year old electric car company is set for a bumper twelve months, as it will soon launch its mass car Model 3 that will sell at US$ 35k – half the price of its current SUV Model X and sporty saloon Model S. Interestingly, Tesla’s market value, at US$ 49 billion, has overtaken both Ford’s US$ 46 billion and GM.

With its parent company L’Oreal putting it up for sale, it seems that Goldman Sachs is considering to acquire The Body Shop in a US$ 750 million sale. There are several other parties, including Advent International, Apax Partners, Carlyle and CVC Capital Partners, interested in the company, founded by Anita Roddick in 1976 and sold to the French retailer in 2006 for US$ 812 million.

It is reported that Canada’s SNC-Lavalin Group is in the market to acquire the UK’s WS Atkins for US$ 2.6 billion, equating to US$ 2.60 per share – a 35.1% premium on Friday’s closing price of US$ 1.93. Although the UK’s engineering and consultancy firm has a long history with Dubai (and best known for its work on the iconic Burj Al Arab), 50% of its revenue is generated in Europe.

With Apple indicating that it would start developing its own chip technology, shares in the UK’s Imagination Technologies slumped 67.4%, resulting in its market value falling to US$ 312 million. Over 50% of the UK company’s revenue is derived from Apple’s royalty payments.

When its US$ 4.5 billion acquisition of Yahoo is finalised, Verizon Communications will create a new company called Oath along with its AOL operations. It will be interesting to see whether this combination can actually sell more digital ads.

As if Toshiba has not enough trouble on its plate and now it has been forced to buy the 40% of the UK nuclear energy company, NuGen, that it does not already own from French utility company, Engie. With all its problems from Westinghouse in the US, the South Korean company will now face difficulties with the UK project in West Cumbria that will probably face delays and maybe cancellation.

JAB Holdings, owner of Krispy Kreme Doughnuts and Kenco Coffee, has agreed to pay US$ 7.5 billion for control of 36-year old Panera Bread, the US bakery and sandwich chain. Following the biggest ever restaurant deal, Panera’s share value jumped 14%.

After Unilever rejected a February US$ 143 billion takeover offer by Kraft, the Dutch-British consumer products conglomerate has surprisingly announced the sale of its margarine sector. In a further bid to placate its shareholders, the company will increase its dividend payout by 12% and also launch a US$ 5.5 billion share buy-back later in the year.

Boeing has finalised a US$ 4 billion deal with Iran’s Aseman Airlines for 30 737 Max aircraft, including purchase rights for a further 30. This is the second deal that the company has made with Iranian interests, following its US$ 16.6 billion sale of 80 passenger planes to Iran Air last December.

Credit Suisse officials are helping European authorities investigating tax evasion, currently involving five countries – Australia, France, Germany. the Netherlands and the UK – and a massive 55k accounts held by the Swiss bank. To date, Dutch prosecutors have seized US$ millions in assets, including cash, gold and paintings, whilst investigating up to 3.8k accounts.

President Jacob Zuma has upset the markets with his dismissal of Finance Minister Pravin Gordhan that led to the rand dropping 5%. Apart from trying to rein in rampant corruption, the South African finance chief had continued to resist Zuma, keeping a vigilant and tight watch on public expenditure. The inevitable consequence sees the economy downgraded to junk status by S&P.

The eurozone continues to see unemployment rates dropping, with January’s 9.5% recording its lowest level since May 2009. Germany’s rate of 3.9% is impressive when compared to say Greece’s 23.1% and Spain’s 18.0%. (Germany continues to be the standout performer of the bloc with latest data indicating that its rate of economic expansion has hit a 70-month high).

There was also good news from the IHS Markit’s March’s manufacturing Purchasing Managers’ Index up 8 notches to 56.2, month on month.  Overall the eurozone private sector recorded its fastest expansion in almost six years with Germany, whose final composite output index was up from 56.1 to 57.1 continuing to be the leading member of the bloc in February.

In the likely event of negotiations between its creditors (the eurozone and the IMF) failing, Greece has requested an urgent summit to try and break the months’ long deadlock. The main problems centre around debt relief (again), further pension reductions and budget targets. This has led to a delay in an installment of a US$ 92 billion payout originally agreed in 2015. In short, the IMF is for even more debt relief for the beleaguered country and is reluctant to continue with this third tranche. The eurozone wants monetary participation from the world body and is against any future debt relief.

February new orders for manufactured goods continue their recent upward momentum, with the US Commerce Department posting a 1.0% increase led by a 1.8% hike in durable goods orders. Meanwhile the trade deficit narrowed by 7.6% to US$ 44.8 billion, as February imports fell 1.8% to US$ 236.4 billion, month on month, and exports nudged 0.2% higher to US$ 192.9 billion. Based on current data, it is expected that there will be annualised gains in real exports of 3.0% and 2.0% for real imports, resulting in an expected 1.7% overall GDP growth this year.

Employment in the private sector was on the rise with an 8.3% month on month increase to 263k in March the biggest monthly gain in over two years. The US unemployment rate dropped to its lowest level since May 2007, as it fell to just 4.5. With any figure below 5% considered “full employment”, a slowdown in payroll growth is almost a given and this may preclude a further Fed rate in June.

If you get caught in the latest scam doing the rounds, you definitely need your head examining. Using a fake Dubai Financial Services Authority’s letterhead, any person sending a US$ 4k “activation fee”, to a UK contact, will receive a payment of US$ 7.9 million (in sterling). Just like recent Ponzi schemes in the country, people get sucked in far too easily – and unfortunately, to their cost, Only Fools Rush In!

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