You’ve Got Your Troubles

According to recent data from Dubai Land Development the property market is on the rebound, as H1 transactions were 16.8% higher at US$ 36.0 billion compared to H1 2016.  With increased government spending and the upcoming Expo, the sector will continue heading north.

A JLL report indicates that 2018 will see much of the same as last year for the Dubai realty sector, with sale prices and rents continuing to fall because of the additional supply entering the market. One of the main factors behind the slowdown is that last year’s 1.7% growth was well below the 4.1% historic average. It is estimated that the total residential stock stands at 491k (with apartments accounting for over 80% of the total) and that the number of new launches is well below that recorded in the peak years of 2007. Despite this, the majority of current sales are for off-plan properties which totalled 25.6k last year. But what happens if the emirate’s economy grows 4% this year which is a distinct possibility? Will there be a marked upturn in the sector?

A Chesterton report indicates that last year, off plan property deals increased year on year by 60%, with a marked rise towards the end of the year. The top three locations (by value) were The Lagoons (US$ 218 million), Downtown (US$ 212 million) and Business Bay (US$ 207 million), with Dubailand, Business Bay and Al Furjan  being the most in demand. However it is to be noted that in Q4 ready property sales volumes, quarter on quarter, were 17% higher as off-plan headed the other way – down 8%; transaction values were up 15% whilst off plan declined by 16%.

The agency estimated prices for both villas and apartments dipped 3% in 2017 and expects much of the same this year as new units add to the emirate’s property portfolio; 45% of the new supply over the next five years will be priced below US$ 272 per sq ft.

Relative-newcomer, Danube Properties, announced that it had sold new homes to the value of US$ 223 million last year. Since its 2104 inception, the company has been involved in nine projects, comprising 3.2k units, valued at US$ 774 million.

Following approval by the Department of Tourism and Commerce Marketing, Sabah Rotana is to be built on SZR. The 54-storey tower, with 533 rooms and serviced apartments, is in collaboration between developer RSG Properties and hotel operator Rotana.   The 5-star hotel will be ready prior to the opening of Expo in October 2020.

BinGhatti Hospitality is planning to invest US$ 136 million in an expansion plan that will see more than 200 branches over the next three years. The Dubai-based company is involved in hospitality management services across the region.

DXB Entertainments reported that last year there were over 2.3 million visits to Dubai Parks and Resorts, with 34.6% (796k) of the total in Q4. The largest integrated theme park destination in the region is benefitting from a major restructuring program introduced in Q3 2017.

Dubai-based ASGC has been appointed the main contractor for AccorHotels’ 25hours One Central. The 434-room property will be the brand’s largest hotel in the world and will open in 2020.

Swedish & Sweid has appointed Core Savilles as their lead sales agent for the 32-storey Banyan Tree Residences – Hillside Dubai. The development will include a range of 1 – 4 B/R apartments, as well as three penthouses along with a resident-only clubhouse.

The RTA has awarded the first two road construction contracts – improving the Jebel Ali-Lehbab Road and the construction of bridges on Sheikh Mohammed bin Zayed Road – as part of the six-phase Expo Roads Improvement Project. Phase 1 is valued at US$ 371 million, with the project‘s aim to ensure that visitors to Expo have a hassle-free route in and out of the mega event.

Spain’s ACCIONA Producciones y Diseño has been awarded a contract to work on the technical development and museographic implementation for phases 2A, 2C and 2D of the Shindagha Museum project. Located in Dubai’s Historic District, work on these phases is expected to be completed by year end.

A Colliers International report noted that 6.8k rooms were added to the country’s hotel inventory, bringing the total number to 77.7k; this is set to rise by a massive 53.1% by 2020 to 119k. Russian visitor numbers almost doubled last year whilst there was double digit growth of Chinese nationals. The consultancy expects an improvement in occupancy rates but because of increased supply and more affordable hotels, there will be an inevitable dip in profitability indicators.

Having attracted 327k medical tourists in 2016, generating over US$ 272 million, the Dubai Health Authority is keen to reach 500k by 2020. The emirate is making “significant progress” and just needs to see an annual growth of 11% to reach this ambitious target.

Dubai Municipality is to build the world’s largest waste-to-energy project, at a cost of US$ 681 million. Located in Al Warsan, the plant will treat up to 1.82 million tonnes of waste annually with a capacity to produce 185Mw of power, equating to the electricity needs of 120k homes. With work starting by mid-year, the development will take two years to complete. Along with DEWA, other stakeholders will include Belgium’s Besix Group and the Swiss Hitachi Zosen Inova.

It appears that there will be further delay in the startup of the country’s first nuclear as the regulator, the Federal Authority for Nuclear Regulation, has announced that Nawah is not ready to receive its operating licence. The company – a JV between Emirates Nuclear Energy Company and Korea Electric Power Corporation – is to build four APR-1400 reactors, with the first one due to be operational this year.

Dubai Silicon Oasis is planning to spend US$ 136 million to set up a campus of Rochester Institute of Technology, with a capacity for 4k students. The first phase of the 129 sq mt project, costing US$ 54 million, will be completed within two years, with phase 2 on line by 2023.

UAE petrol prices rose again on 01 February – this time, Special 95 is up 6.1% to US$ 0.651 per litre, whilst diesel, at US$ 0.678 is 6.8% higher. Prices rises reflect the recent hike in oil costs which last year saw Brent up 16.4% and Special 95 by 16.9%.

Although 2017 revenue was 8.0% higher at US$ 8.7 billion, Majid Al Futtaim Group registered only a 1.9% hike in profit to US$ 1.1 billion, as some of its units registered slower growth last year. Of the three divisions – Properties, Retail and Ventures – revenue was higher by 3.0% to US$ 1.2 billion (EBITDA – US$ 790 million), 8.0% to US$ 7.1 billion (US$ 327 million) and 14.0% to US$ 572 million (US$ 70 million). respectively. The group’s bottom line was not helped by the currency devaluation out one of its largest overseas markets, Egypt.

Nakheel posted a massive 58% surge in Q4 profits to US$ 455 million, as annual profit was 14% higher at US$ 1.5 billion, driven by diversification and an uptick in the property market. The developer spent US$ 2.2 billion on construction contracts during the year.

Gulf Navigation Company is set to acquire a major shareholding in Singapore-based Atlantic Navigation Holdings which has assets totalling US$ 177 million. When finalsied, the Dubai-based operator will manage a total of thirty supply and maritime service ships.

Al Ghurair Group, via its subsidiary Canal Sugar Co, is set to invest up to US$ 1 billion in Egypt on two projects – US$ 550 million in which the company will lease and reclaim 181 acres of desert in Minya and the balance for a plant to produce 750k tonnes of high-quality sugar from beet.

Emirates NBD launched a US$ 1.2 billion Australian denominated bond as part of its so-called Kangaroo programme, with a 4.75% indicative annual coupon. Meanwhile Dubai Islamic issued a five-year, US$ 1 billion sukuk at a 3.625% profit rate; this was part of the bank’s US$ 5 billion sukuk programme.

Emirates NBD is also in preliminary discussions with Russian-based Sberbank to acquire 99.85% of Turkey’s Denizbank. Dubai’s biggest bank, with Q4 profits 17% higher at US$ 597 million, is keen to expand its overseas operations. In 2013, it had bought BNP Paribas’ Egyptian banking business.

Dubai Islamic is also to seek shareholders’ approval to raise US$ 450 million, through a share issue, which will see the option for stakeholders to purchase one share for every three held, with the possibility of a discount being offered. If it goes ahead, the bank’s capital base will increase by 33.2% to US$ 1.8 billion. At the same meeting this month, the shareholders will also be asked to approve a US$ 605 million 2017 dividend.

According to Central Bank figures, total bank deposits grew by 3.0% to US$ 443 billion during 2017. Total assets of the country’s operating banks fell 0.3% to US$ 734.3 billion, with banking credit also dipping- 0.9% to US$ 430.5 billion.

Mashreq posted a 6.5% hike in 2017 profits to US$ 572 million on the back of a 2% fall in operating expenses and a 14.2% drop in impairment provisions. Both the bank’s total assets and loans/advances were up – by 1.9% to US$ 34.1 billion and 2.9% to US$ 17.1 billion respectively.

Dubai Financial Market announced an 8.0% dip in annual 2017 profits to US$ 63 million, with revenues dipping 4.0% to US$ 125 million. Q4 saw disappointing returns for the bourse – with marked declines in both revenue (17.0% lower at US$ 29 million) and profit down 24% at US$ 16 million. A 5% cash dividend has been proposed by the board.

The DFM opened on Sunday (28 January), at 3469 and having shed 62 points a week earlier dropped a further 57 points (1.6%) to close at 3412 by Thursday, 01 February. Emaar Properties was down US$ 0.07 at US$ 1.80, with Arabtec edging US$ 0.02 higher to US$ 0.74.  Volumes were lower at 158 million shares traded on Thursday, valued at US$ 78 million (compared to 247 million shares worth US$ 89 million the previous Thursday – 25 January). For the month, Emaar was down US$ 0.10 at US$ 1.79 and Arabtec traded higher up US$ 0.06 at US$ 0.71 from their year openings of US$ 1.89 and US$ 0.65.

By Thursday, Brent Crude traded US$ 0.77 (1.1%) lower at US$ 69.65, with gold heading the same direction – down US$ 15 (1.1%) to US$ 1,348 by 01 February 2018. For the month, Brent  was up (3.4%) from US$ 66.62 to US$ 68.89 whilst the yellow metal fell US$ 2 (3.0%) to US$ 1,343.

It seems that troubled Toys R Us is looking for a buyer for its UK operations which employ 3.2k after a disappointing festive trading season. The UK’s biggest toy retailer looks certain to close doors if a buyer cannot be found. Suffering from mounting pressure from Amazon and other online competitors, Toys R Us has increasing problems in its home location where it plans to reduce its number of shops by 20% to just over 700.

Boeing reported an impressive 92% hike in Q4 profits to US$ 3.1 billion and a recorded sale of 763 aircraft in 2017. Earnings were boosted by a one-off gain from US tax cuts and increased demand for its workhorse 737.

However, it was not all good news as, to the surprise of many, Boeing has lost its landmark case against Bombardier which refuted the claim that both the UK and Canadian governments had given unfair subsidies to the Canadian aerospace firm. This comes after December’s ruling by the US Commerce Department that imposed 292% tariffs on imports of its C-Series planes. Apart from the 1k workers at Bombardier’s Belfast plant, it was also good news for Airbus who had taken a majority share in the C-Series when the Canadian firm was struggling and looking likely to lose the case.

The low-key German Reiman family, through their JAB Holding vehicle, has many lucrative investments including 38% of Coty (Max Factor and Rimmel), 8% stake in Reckitt Benckiser (Mr Sheen, Airwick, Dettol, Nurofen and Durex), 50% of Jacobs Douwe Egberts and doughnut chain Krispy Kreme. This week it was in the market and snapped up Dr Pepper Snapple, the world’s fifth-largest fizzy drinks company, for US$ 18.7 billion.

Following a major multi agency US probe, three banks – Deutschland Bank, HSBC and UBS – along with eight employees have settled the various cases for alleged manipulation in the country’s futures and commodities market. One of the cars involved the use of spoofing – involving placing bids to buy or sell contracts with the intent of cancelling them before execution.

Despite posting record 2017 sales (6% higher), Intel has lost its top global position as the biggest chip maker (by sales) to Samsung Electronics. The South Korean company posted annual chip sales totalling US$ 69.0 billion with profit of US$ 11.2 billion.

With reports that Apple is looking to half its Q1 production of its 10th anniversary smartphone to just 20 million, the tech giant saw US$ 60 billion wiped off its market value this week.

Fujifilm is planning to slash 10k from its payroll by 2020 as its subsidiary, Fuji Xerox – a 55-year old JV with Xerox – is struggling in an “increasingly severe” market. The Japanese company, a manufacturer of printers and copiers in a dwindling market, is to take a majority 50.1% stake by absorbing Xerox and forming “New Fuji Xerox”.

Instead of taking some of the blame for their role in the demise of Carillion (which had 450 government contracts), MPs are now looking at the big four auditors – Deloitte, EY, KPMG and PwC – to see what work they had carried out for the past decade. It does seem strange that one of these firms is now acting as a liquidation ‘special adviser’, after working with the government on Carillion’s pension scheme when it was still in business. Furthermore, the company’s only auditors for the past 18 years had approved audited accounts last March which included a US$ 2.2 billion goodwill valuation and had also signed off four months before a massive profits warning, following a US$ 1.2 billion write-down of the value of its contracts. Two banks were in the market for financing this week. When it went under, the company had a market cap of just US$ 85 million and liabilities of over US$ 7.0 billion, including a pension deficit of US$ 3.6 billion.

Capita seems to be going the same way as Carillion which last June announced a management shakeup and a loss of a major contract, followed by a profits warning and then a slump in its share value. Now the outsourcing firm which last month lost a lucrative Deal with Prudential, has announced major management changes, issued yet another profit warning and seen its market value plunge by more than 37%. Like Carillion it has several major government contracts including operating London congestion charges and collecting BBC licence fees.

After two months in 5-star incarceration at Riyadh’s Ritz Carlton, Prince Alwaleed bin Talal was freed earlier in the week. He – and up to 200 hundred others – had been detained as part of the country’s crackdown on corruption but the flamboyant businessman expects to be cleared of any wrong doing. He denied that he had been involved in money laundering, bribery and extorting officials, but whether he paid a US$ 6 billion “settlement” is still unknown. On the news of its chairman’s release, Kingdom Holding Co saw its share value up by over 10% – the maximum allowed on a day’s trading and the most since November 2014 – and by a further 7% the following day.

Officials have announced that there are no longer any detainees at the Ritz Carlton but it is unclear how many are still in detention, assuming no settlement had been reached. Last week, it was reported that 95 of the 185 held remained in custody. It was also announced that the purge has resulted in the repayment of US$ 106 billion to the government. When compared to say Apple’s current cash balance of US$ 163 billion (net of debt) it does not seem that much!

More positive economic data emanating from the US sees December’s personal income 0.4% higher, following a 0.3% hike the previous month, whilst personal spending and real spending increased by 0.4% and 0.3% respectively.

The fact that UK average pay increases at 2.1% are lower than inflation levels of 3.0%, resulting in a decline in real wages, is but one driver behind December mortgage approvals of 36.1k falling to their lowest level in nearly five years – and 19% down year on year. Another contributing factor was the mistimed November 0.25% hike in rates which has exacerbated an already serious problem. Not surprisingly, national house prices have flattened, led by falls in London.

Q4 EU growth slowed to 0.6% (0.7% in Q3) but showed a stronger 2.6% increase for the year. This return was slightly lower than the 2.7% posted in the eurozone and marginally higher than the 2.5% recorded for the UK. Meanwhile there was a decline in the eurozone’s inflation rate to 1.3% in January, compared to December’s 1.4% (and the bloc’s target of 2.0%). Meanwhile there was an improvement in the eurozone unemployment figures with the December figure of 8.7% (compared to 9.7% a year earlier). There are still major problems in both Greece and Spain where the unemployment levels are still at a worryingly high 20.7% and 16.4% respectively; the message to both governments, You’ve Got Your Troubles!

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