We’re Heading For a Train Wreck!

A Cavendish Maxwell report serves to confirm that rent declines will continue for the rest of the year, as new stock will add to Dubai’s property portfolio of some 500k residential units. It estimates that in H1, 7k units have been added, with a possible 13k to follow in H2. In the past twelve months, over 6% falls have been recorded in Al Furjan, Discovery Gardens and The Greens.

No surprise from the latest Bayut.com report that indicated that both buying and renting property have become cheaper over the past six months. Rental decreases averaged between 2% – 9%, with the biggest drops for 1-B/R apartments in Deira down by 15.4% and 2-B/R units in Dubai Sports City 10.6% off. Dubai Marina was the favoured location for rentals, where 1 B/R apartments could be had for US$ 24k, as well as for sales; although 1-2 B/R units have dipped by around 5%, studio prices there still hover around US$ 232k. When it comes to villas, Mirdif, with rentals of US$ 33k for a 3 B/R, was the most popular and for sales Arabian Ranches, where there have been 6% declines, 3 B/R villas will fetch US$ 817k. As prices dip, it is inevitable there will be a point when first-time buyers will enter the market which in turn will see prices nudge higher after three years in the doldrums.

Meanwhile a ValuStrat reported that Q2 prices for residential properties were 3.8% lower – the biggest quarterly dip in four years –  with prices 20% off from 2014. It also suggested that the falling prices may have resulted in a boost in sales, with transaction volumes and average ticket sizes both heading north. In the 26 freehold locations studied, price falls ranged from 0.2% to 6.1%, with 5%+ declines seen in Business Bay, Downtown, Emirates Living, International City, Jumeriah Island and Motor City. There was also a slowdown in rental prices, down 8.4% for the year but only 1.7% over the past three months. Despite the holy month of Ramadan falling in Q2, off plan sales were 18.7% higher (and 10.9% up for the year) whilst secondary property sales were up 10.2% (1.5% on an annual basis).

There was a 15.9% decline to US$ 30.2 billion in the total value of H1 real estate transactions as transaction numbers fell by 22.3% to 27.6k. The three most active locations were Business Bay – 1.9k transactions, valued at US$ 1.14 billion – Dubai Marina (1.4k, US$ 790 million) and Al Merkadh (1.3k, US$ 572 million). Emiratis were the biggest players in the sector – with 3.0k deals worth US$ 1.85 billion – followed by Saudis and Indians.

Marriott International will no longer manage the three hotels – The St Regis, W Dubai Habtoor City and The Westin Dubai Al Habtoor City – owned by the Al Habtoor Group. Located in the heart of Dubai, adjacent to the Dubai Canal, the three properties comprise 1.6k rooms and have been open for about two years.

DEWA has major investment plans that will see the emirate continue to meet increasing customer demand, driven by 8% annual population growth. It has awarded a US$ 286 million contract for the construction of electricity transmission projects including a 400/132kV substations, two 132/11 kV substations, and 75km of 132kV ground cables. Over the next five years, the investment spend is forecast to top US$ 22 billion.

According to an OAG Aviation report, Emirates Dubai-Heathrow route is the world’s third best for generating revenue, producing almost US$ 819 million billion last year, equating to US$ 33k per hour. It comes in behind BA’s London-New York at US$ 1.0 billion and Qantas’ Sydney-Melbourne’s US$ 854 million. Strangely, Virgin Atlantic will cease flying the Dubai-LHR route as from March 2019 because it was no longer economically viable due to a combination of factors.

The four major UAE airports have forecast to spend US$ 23.2 billion on development and expansion, 68.1% of which will be spent on the two Dubai facilities. Developing the Al Maktoum International to be the largest in the world will see a spend of US$ 8.2 billion and expanding phase IV of Dubai International a further US$ 7.6 billion. It is estimated that within five years, capacity at both airports will total 238 million passengers, of which Dubai International will accommodate 118 million.

A month after Dubai Airports announced that it would be setting up a US$ 40 million investment with Crop One Holdings to build the world’s largest vertical farming facility, the Ministry of Climate Change has signed a five-year agreement with Shalimar Biotech Industries to establish twelve vertical farms on the ministry’s land in Dubai. The main aim of the project, encompassing 7.6k sq mt of government land, is to enhance the country’s food security and diversity.

Mall.Global DMCC unveiled its US$ 500 million investment plans for an online retail venture that will go live in various locations, including China, Europe, India and the MENA. Mall.Global will be a digital mall, with over 2.5k branded stores and offer each customer a personalised experience utilising AI and virtual reality. Testing will start early next year before going live, via sequential launches in 2020.

The Dubai Statistics Centre reports that SMEs account for 46.9% of the emirate’s GDP and employs 52.4% of its workforce. Half of the registered SMEs are less than five years old, with a further 20% in the 5-9-year category. SMEs are categorised into three sectors – for trading entities:  micro, with nine or fewer employees and revenue of under US$ 3 million; small, with 35 or fewer employees and revenue of under US$ 14 million; medium, with 75 or fewer employees and revenue of under US$ 28 million. Manufacturing and service sectors use different parameters to differentiate the three groupings. Micro firms contribute 9.2% to GDP and 9.3% to the workforce, small – 25.6% and 30.6% and medium 12.1% and 12.5% respectively.

The Bloomberg Billionaires Index of the world’s 500 richest people include at least three who reside in Dubai – Alexander Abramov, Leonard Fedun and Majid Al Futtaim, all having a net worth of just over US$ 6.0 billion. The index also indicates that Abdulla Al Ghurair and Micky Jagtiani were worth US$ 5.4 billion and US$ 5.0 billion respectively.

One way or another it seems that Noon will be in the grocery delivery business by year end, with the two options either by development or a buy-out. The US$ 1 billion e-commerce site, founded by Mohamed Alabbar, is also looking at expanding into other ME locations. To kick-start its operations in Asia, it has launched two new entities in China, with a permanent office to be opened “soon” and is working closely with several of that country’s manufacturers.

Starting this October, Dubai visitors will be able to reclaim the 5% VAT they have paid on purchases during their stay in the country – this move is in line with most other countries that charge this tax. No doubt it will give much needed impetus to both the hospitality and retails sectors during these difficult times.

Dubai’s June Business growth in the non-oil private sector economy, with the Emirates NBD’s latest economy tracker easing from 57.6 to 56.0, month on month but is still well on the expansion path. Business confidence touched a record high with both wholesale and retail trade, recording 58.6, performing well probably due to the Eid holidays, whilst there was a marked upturn in the construction sector, at 57.1, which could be a lead driver for future economic growth.

Khaldoun Al Tabari has refuted claims that he owes his former company, Drake & Scull International, up to a reported US$ 272 million. An internal enquiry found that there had been “material financial violations from the previous management” but no value was given.

Following the recent government freezing of Dubai private school fees, it is reported that GEMS Education may well delay the company’s London listing which could have happened later in the year. Further reports hinted that Luxembourg’s private equity firm CVC could be interested in buying the Dubai-based education provider.

The Commercial Bank of Dubai posted an impressive 68.7% leap in H1 profits to US$ 246 million, on a 1.1% improvement in operating income to US$ 360 million, comprising a 6.0% increase in net interest to US$ 250 million and a 9.7% decline in non-interest income to US$ 110 million. Over the period, there were increases across the board of 1.5% to US$ 18.8 billion in total assets, 1.9% to US$ 12.9 billion in loans/advances and deposits by 2.6% to US$ 12.8 billion.

The DFM opened on Sunday (08 July) on 2880, having shed 262 points (8.6%) the previous two weeks, regained some ground, up 59 points (2.1%), closing the week, on 12 July 2018, at 2880. Both Emaar Properties and Arabtec were trading higher on Thursday 12 July by US$ 0.05 to US$ 1.39 and US$ 0.04 to US$ 0.56 respectively. Volumes were lower, trading 226 million shares, valued at US$ 64 million, compared to 306 million shares, worth US$ 123 million, the previous Thursday – 05 July).

By Thursday 12 July, Brent Crude, having shed US$ 1.46 (1.9%) the previous week, lost further ground down US$ 3.14 (4.1%) lower to close on US$ 74.25, with gold losing US$ 12 (1.0%) to US$ 1,247. (Latest OPEC forecasts see a 200k bpd slowdown in its oil supply next year to 32.2 million bpd, with non-cartel production up 3.5% at 61.6 million bpd).

Even before the introduction of trade tariffs, the US trade balance in May fell 6.6% to US$ 43.1 billion – its lowest level in 19 months; exports, at US$ 215.3 billion, climbed at a higher rate than imports of US$ 258.4 billion (6.6% v 0.4%). Further encouraging economic data came with a growth in the service sector, as the Institute for Supply Management’s PMI climbed 0.5 in June to 59.1, driven by marked increases in both business activity and new orders index to 63.9 and 63.2 respectively.

There are reports that the US$ 100 billion Saudi Aramco IPO may be delayed among concerns that listing on large international bourses, such as Hong Kong, London and New York, could present too many legal risks. The final decision will be left to the Crown Prince Mohammed bin Salman.

Saudi Arabian Airlines may place a 777X order with Boeing that could help the US plane maker that will probably lose an IranAir order for eighty jets because of Trump’s withdrawal from a nuclear deal. Since the president took office, there have been business deals worth tens of billions of dollars signed between the two long-time allies.

In the week that Rupert Murdoch’s 21st Century Fox is expected to get the green light from UK’s Culture Secretary, Jeremy Wright, to go ahead with its bid, Comcast has come in with a better offer to take over Sky. the renewed offer of US$ 34.5 billion is US$ 2.0 billion than Fox’s, with the owner of NBC also noting that the bid has received the approval of Sky’s independent committee of directors pay TV giant.

Chinese authorities expect H2 growth to slow to around 6.6%, as demand softens and financial market risks become “obvious”; over the same period, retail sales are expected to grow by 9.5% whilst fixed asset investment should come in at 6.5%. The slowdown had already started as the Central Bank took steps to erase riskier lending in the shadow banking sector that in turn has pushed up rates. Now with the US$ 34 billion Trump trade tariffs coming into effect, more money has had to be pushed into the economy. Interestingly, the yuan has lost 7% in value this year which would seem to some to be a deliberate attempt by the government.

China has retaliated with similar moves and also lodged a new complaint with the World Trade Organization, that the US has started the “largest trade war in economic history”. It is estimated that the US tariffs will only impact on 0.6% of global trade and 0.1% on worldwide GDP – this would change somewhat if Donald Trump goes ahead with tariffs of US$ 500 billion!

There was mixed news on the UK economic front in May with a 0.3% increase in GDP growth, driven by hikes in both services (0.3%) and construction (2.9%), whilst production continued its recent declines, down 0.4%. Quarterly growth came in lower at 0.2%, driven by a 1.8% year on year hike in production, with retailing, computer programming and legal services posting strong returns as both house-building and manufacturing contracted. Interestingly, the UK imported 55% of its goods from the EU and exported 49% to the 28-country bloc over the past twelve months.

Eurozone house prices rose by 4.5% in the twelve months to March – its fastest rate since early 2007. Prices in Ireland, Latvia, Portugal, Slovakia and Slovenia posted double digit growth – 12.3%, 13.7%, 12.2%, 13.4% and 13.7% respectively. As rates continue at zero, authorities have had to use other measures to tighten lending to this sector, including caps based on people’s income and the value of the property.

With some seeing Brexit a major problem for the UK they seem to forget that EU countries will also feel its negative impact. This week, the IMF cut Germany’s growth from 2.5% to 2.2% on the back of rising global protectionist tendency and the “renewed financial crisis stress” that it would cause. The world body expressed concerns about the effect of an ageing population and recommended more investment in infrastructure and education.

Meanwhile the US economy continues to grow, with latest figures indicating a higher than expected 213k new jobs created in June, with manufacturing adding 36k; the country has managed to add new jobs every month for the past seven years. The unemployment rate rose 0.2% to 4.0% because more people are looking for jobs in a strong labour market; the annual increase in average hourly earnings was unchanged at 2.7%. It is estimated that there are 6.7 million job openings which is higher than the number of currently unemployed people looking for a job. With business confidence on the up, in an economy heading north, Q2 growth could reach an impressive 4.0%.

US consumer credit climbed US$ 24.5 billion in May, following a US$ 10.3 billion increase a month earlier. Of that total, revolving credit (mainly credit card debt) jumped by US$ 9.7 billion, whilst non-revolving credit (including loans) rose by US$ 14.8 billion. Over the past twelve months, consumer credit has risen by 7.6%, as revolving and non-revolving credit were up 11.4% and 6.2%.

The World Bank Global is increasingly worried that corporate and public debt is becoming a major global problem, now reaching a massive US$ 164 trillion, driven by ten years of low interest. The IIF estimates, that when household debt is added, the total is US$ 237 trillion. Now that rate hikes are looming, and lenders having to pay more interest, there is going to be greater stress on all stakeholders – including emerging markets and developing economies down to the average person with a loan/mortgage to repay. The fall-out will not be pretty –  no doubt, We’re Heading For a Train Wreck!

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