The Land Down Under

Last year, Schon Properties reportedly started work on its US$ 870 million iSuites project in Dubai Investments Park which would comprise 2.6k hotel apartment suites, 52 restaurants, outdoor cafes and a 125k sq ft mall; to cap it all off, it would have been surrounded by a man-made beach and a lagoon spread over five acres. This week, the Dubai Land Department seized properties, land plots and funds deposited in the developer’s escrow account which it will hold until the Dubai Public Prosecution “complete legal procedures to secure the rights of all investors and other parties”.

In 2007, hundreds of investors made partial payments into the developer’s Dubai Lagoon project due for completion by 2008. Last February – more than a decade later – the company announced that it would be transferring parts of the project to another developer, Xanadu Real Estate. Then a year ago came the plan for the US$ 870 million iSuites, due for completion by 2020. Once bitten, twice shy!

Maybe there are other developers in a similar position to Schon – if so, there is no doubt that their day of reckoning nears, with the Dubai Land Department bearing its teeth. More seizures and stricter enforcement will become more prevalent which will be a major boost for the Dubai realty sector which has been struggling for some time.

One developer that seems to firing on all cylinders is Danube Properties which announced that its latest development – the US$ 150 million Lawnz – has sold out within five weeks. Located in International City, the two-year project will see a further 1k units added to bring its total portfolio to 4.7k, with a US$ 1.0 billion development value; prices start at US$ 79k.

Aurora Real Estate has sold all but seven of its twenty townhouses and 122 apartments in its US$ 46 million Hyati Residence development, recently handed over in Jumeirah Village Circle. Later in the year, the private developer will deliver another project in International City. This week it launched its latest – Hyati Avenue, comprising103 apartments and 19 townhouses – due for completion by December 2019. Prices will start at US$ 109k for a studio, US$ 191k for a 1 B/R unit and US$ 754k for a townhouse.

It was reported that the JV between Dubai Holding and Emaar, developing the six km Dubai Creek Harbour, will inaugurate Creek Island Dubai in December. A new development was unveiled this week – Creek Marina will be a city-harbour getaway, located in the centre of Creek Island, the six sq km residential and leisure district. The first Dubai Creek Harbour residents will move in early next year. Creek Marina will also have a 286-key Vida Harbour Point hotel, a pearl-shaped marina with 81 single and double berths, an interactive fountain along with high-end retail and food outlets.

Kleindienst Group have invested US$ 1.4 billion in The Heart of Europe – a six million sq ft development on the man-made World Islands, four km off Dubai’s coast. The project includes the ‘countries’ of Germany (with 32 villas) and Sweden (with ten beach palaces) with a further 131 Floating Seahorse vessels that will be berthed for vacation stays in Russia and Italy. All ten palaces, with a price range of US$ 8.2 million through US$ 20.6 million, have been sold and will be handed over by the end of the year. Most of the villas, with prices of between US$ 3.1 million and US$ 7.1 million, have been sold and hand-overs will start in December. The Floating Seahorses, which are moored at their location, will see delivery start this month.

Propertyfinder Trends reckon that there have been rental falls in both Dubai apartment rents and selling prices of 18.2% and 14.0% over the past two years. There could be some good news on the horizon for certain locations, as villa rentals in Jumeirah Village Circle and Mudon were 5.4% and 2.4% higher over the same period.

The report said some areas in Dubai are showing signs of life, with villas for rent up 5.4% and 2.4% in Jumeirah Village Circle and Mudon, respectively. Arabian Ranches stayed flat over the same period. Since January, Palm Jumeirah has seen villa sale prices move up 5.2%, whilst apartment sales were 2.7% to the good in Dubai Investment Park – the only place to record any improvement. With regard to apartment rentals, Al Furjan was the only location to move higher – 2.7%. Maybe there is light at the end of a very long tunnel in time for Expo 2020.

According to ISS Worldwide, shipping volumes for expats returning home have “come down drastically” by up to 15% in terms of both bookings and enquiries. The conclusion is that the expat exodus may well have slowed down this year, with the shipping company indicating that inbound shipments are on the up and that “more people seem to be coming in compared to 2017”. Time will tell!

A Knight Frank’s Prime Global Cities Index ranks Dubai 35 out of 42 when it comes to real estate performance. According to the consultants, prime property has fallen by under 0.8% over the past year, although the pace of decline quickened since January, falling 0.6% in Q2.

It seems that the UK press have a love-hate relationship with Dubai and often fabricate news stories to give a biased slant on events. Some usually involve “unlucky” tourists, whilst others are related to the economy. This blog was interested to see a recent article in The Sunday Times which advised its readers that it should think twice about investing in local real estate because of an oversupply coming into the market. That may be so, but their estimates of an additional 550k by 2020 seems a little far-fetched, especially if one considers that the present portfolio hovers around 500k and that under 4k were handed over in Q1.

Despite a ruling by a London court in favour of DP World against Djibouti seizing the Doraleh Container Terminal, the African government has refused to recognise the tribunal’s decision. Meanwhile, the Dubai port operator is adamant that the contract to run the port in Djibouti remains in “full force and effect”. In February, the 30-year agreement was cancelled by the African government who seized the facilities designed, built and operated by DP World.

DP World saw its long-term issuer rating upgraded one notch by Moody’s to Baa1, with a stable outlook because of its strong track record, solid profitability and liquidity profile.

There is very little sympathy for the European tourist who managed to rack up fines totaling US$ 46k in the space of three and a half hours on the very early morning Dubai roads. The rent a car company, that leased the US$ 354k Lamborghini Huracan, is taking legal action on the errant motorist to reclaim the money it has had to pay the police for the car’s return.

The Department of Economic Development has estimated that incoming foreign direct investment over the past three years has been over US$ 21.7 billion; this has resulted in the 860 projects creating an extra 54k jobs in the tech sector. This investment, 66% of which emanates from the EU and the US, has boosted Dubai’s drive to become a major knowledge-based economy.

One of the first casualties of the Abraaj Capital downfall is Stanford Marine Group that has failed to meet its debt obligations.  The company, which operates offshore supply vessels, has also been hit by a sharp decline in chartering rates, is in discussions with three potential buyers. Abu Dhabi’s Waha Capital owns a 49% stake in SMG.

Amanat Holdings has spent US$ 300 million this year on three investments, the last of which was US$ 100 million to complete the 100% acquisition of Middlesex University Dubai. This brings the GCC’s largest healthcare and education investment company’s portfolio to three education assets in the UAE, two healthcare assets in Saudi Arabia and another real estate investment.

Shuaa Capital posted a 21.0% hike in Q2 net profit to US$ 4 million and is expected to distribute its first dividend in over a decade. However, the investment bank posted a 28.5% fall in H1 profit to US$ 7 million, with revenue 2.9% to the good at US$ 17 million. Its total asset base has risen by a third to US$ 436 million over the past twelve months.

Although DXB Entertainments posted a narrowing of its Q2 net loss, by 11.0% to US$ 69 million, the result was higher than market expectations. There was a 3.0% decline in revenue to US$ 32 million, although both visitor numbers rose 48.0% to 613k and operating expenses fell 11.0% to US$ 77 million. The company will “evaluate future development plans and capital deployment” and expects “to deliver year-on-year growth compared to the year ended December 31, 2017.”

Arabtec posted a 98.2% jump in H1 profit to US$ 31 million on the back of a 13.0% rise in revenue to US$ 1.3 billion. It had a US$ 9.4 billion backlog of tenders submitted or under preparation. The fact that the company managed to improve debtor days by 17 days and decreased trade and other receivables by US$ 61 million resulted in a US$ 56 million positive cash flow. The company has seen dark times in the past and its share value, at US$ 0.53, is still 43.7% lower than this time last year.

Depa posted disappointing H1 results, with net profit 68.4% lower at US$ 10 million, although revenue nudged 2.0% higher to US$ 232 million; however, last year’s figures benefitted by the fit-out firm recovering two long-standing debts. Expenses were 13.6% higher at US$ 218 million, with an order backlog 5.0% higher at US$ 515 million.

The DFM opened on Sunday, 05 August on 2974 and ended on Thursday 54 points lower, 1.8%, at 2920. Over the week, both Emaar Properties and Arabtec dipped by US$ 0.01 – to US$ 1.44 and US$ 0.53. Volumes improved slightly to 127 million shares, valued at US$ 43 million (compared to the previous Thursday, 02 August, when 68 million shares at US$ 26 million were traded).

By Thursday, 09 August, Brent was trading US$ 1.38 (1.9%) lower at US$ 72.07, whilst gold nudged US$ 4 higher to US$ 1,224.

Driven by higher production and prices, Rosneft posted a significant tripling of Q2 profits to US$ 3.6 billion, with revenue climbing 49.0% to US$ 32.7 billion; H1 profits came in at US$ 4.9 billion. Shares in Russia’s largest oil producer, which pumps 4.6 million bpd, hit record highs on this latest news.

Rolls Royce posted a H1 US$ 1.3 billion loss (after a US$ 1.5 billion profit in the same period last year) as it suffered again from exceptional charges of US$ 720 million to its Trent 1000 power plant. Repairs to the engines, used by the A380 and the Boeing 787, have come about because some have been wearing quicker than expected. With the US$ 650 million sale of its loss making commercial marine business to Norway’s Kongsberg, the Derby based company can now focus on its three core businesses – civil aerospace, defence and power systems.

There is a chance that the US$ 9.1 billion merger between Smiths Group, the FTSE-100 industrial conglomerate, and Nasdaq-listed ICU Medical will not go ahead. It seems that another US player, Baxter International is also interested in acquiring the UK company. Both suiters are major healthcare companies whereas Smiths Medical, which accounts for 30% of the Group’s revenue is but one of five divisions which includes security detection, and John Crane, a provider of engineering solutions for energy and other process industries.

In a bid to diversify and grow its revenue streams, Samsung has announced a US$ 22 billion, three-year investment plan in areas such as artificial intelligence, 5G mobile technology, electronic components for autos and the biopharmaceutical business. This is in response to a slowdown in its two core business sectors – semiconductor and smartphone. Over 72% of the new investment will be spent in South Korea and is expected to add 40k new jobs. The Group’s 62 affiliates have assets totalling in excess of US$ 351 billion.

Toyota shocked the market by posting a 7.2% hike in Q2 profits to US$ 5.9 billion and selling 0.9% more vehicles at 2.2 million. The carmaker reported strong sales in Asia, especially in Thailand, and indicated that it had introduced several cost reductions that boosted its bottom line. In May, Toyota posted that it had made a US$ 23.0 billion profit (36.2% higher than in the previous year) and sold almost 9.0 million units. Whether the introduction of tariffs will have a negative impact on Toyota, and the car industry in general, remains to be seen.

Tesla posted a Q2 record loss of US$ 717 million as it continues to burn cash – this quarter US$ 740 million, 32.7% lower quarter on quarter. The electric car-maker is ramping up production of its Model 3 and expects to raise levels by around 75% to 55k in Q3. However, Elon Musk reckons that this quarter would be the last posting losses and that profits would start forthwith; he also indicated that within a year there would be 10k Model 3s coming off the assembly line every week and that Tesla would be producing 750k vehicles in 2020.

Later in the week, the South African entrepreneur tweeted that he may take the electric car firm private so that he would no longer feel pressured into making short-term decisions to keep shareholders happy; if it were to go ahead, the share could have a 16% premium on today’s prices. If that were so, the company would be valued at US$ 80 billion. Meanwhile, the Financial Times reported that the Saudi sovereign wealth fund had taken a 3%-5% stake in Tesla.

Higher programming costs and a fall in its ESPN sports channel subscribers resulted in Walt Disney not meeting its quarterly profit forecast; the markets were not too happy and its shares fell more than 2% on the news. However, its revenue stream was 7.0% higher at US$ 15.2 billion whilst profit was 22.9% to the good at US$ 2.9 billion.

This week, 21st Century Fox, which already owns 39.1% of the company, posted its offer for Sky plc, owner of Sky News – its price remained unchanged and values the whole company at almost US$ 32 billion. The other interested party, the US cable operator Comcast, will be happy to take just a 50% stake, plus one extra share, of Europe’s largest pay-TV broadcaster.

To add to his investments in Lyft, Twitter and JD.com. and other tech companies, Prince Alwaleed Bin Talal has now paid US$ 250 million for a 2.3% stake in Snap. The social media company seems to be struggling recently with a 1.6% decline in daily active users to 188 million and increased competition for digital ads from the likes of Facebook. The latest quarterly figures show a 44% hike in revenue to US$ 262 million, with losses reducing to US$ 353 million – 20% lower than the same period in 2017.

Every now and then, this blog bemoans the fact that Amazon – and similar mega companies – continue to take the p… out of the UK taxpayers. It managed to cut its latest tax bill by 37.8% to US$ 6 million and only paid 37% of that total, deferring the balance. Having revenue of almost US$ 2.6 billion in the UK, it saw its net profit climb 73.9% to US$ 102 million, which in itself does not seem a particularly high net margin. There is no doubt that Amazon’s approach is both perfectly legal and blatantly unfair. Like Sergio Ramos, Amazon get away with it when the rest of the world looks on bemused.

It would be safe to say that Venezuela is in a bit of an economic mess, with inflation running at 1,000,000%. Hyperinflation sees an egg costing 200k times more than a litre of 91-octane petrol and US$ 1 can be changed for 3.5 million bolivars. The country now produces 1.5 million bpd – less than half the figure of ten years ago. Fuel subsidies cost the impoverished Latin American country US$ 10 billion and now it imports 34k barrels of gasoline and 36k barrels of diesel every day from the US.  In Venezuela’s inflation-hit economy, a single US dollar can buy 3.5 million litres of gasoline!

Public anger in Malaysia led to the defeat of Najib Razak’s long-ruling coalition in May’s vote, ushering in the first change of power since the country gained independence from Britain in 1957. Whilst he was in power, investigations into the running of the state investment fund,1 Malaysia Development Berhad (1MDB), were stifled and only recently reopened when the new government came to power. International investigations claim that billions of dollars were creamed off by the ex-PM’s associates, including his stepson who reportedly used funds to help finance ‘The Wolf of Wall Street’ film. He is now finally facing the court on numerous charges including money laundering and fraud.

At long last, it seems that Japanese consumer spending and inflation are showing signs of pushing upwards. Its workers’ inflation-adjusted real wages showed a 2.8% annual hike in June – when it rose at its fastest pace since 1997 – with increased summer bonuses being the main driver. Most other related indicators headed north over the year – nominal cash earnings by 3.6%, overtime by 3.5% and monthly household income by 9.1% to US$ 7.3k. This data will be good news for the Bank of Japan, as core inflation hovers around 1%, still some way off its 2.0% target, despite five years of massive stimulus. After contracting in Q1, the economy bounced back this quarter and grew at a much faster rate than expected of 1.9%, driven by a jump in private consumption.

In June, Germany’s exports remained flat at US$ 134.0 billion whilst imports rose 1.2% to US$ 109 billion – its highest level since records began in 1950. Consequently, its trade surplus slipped 5.4% to US$ 22.4 billion. The largest economy in Europe saw imports, at 10.2%, grow at a faster rate than the 7.8% for its exports. The question to be asked is whether Germany is doing enough to counteract their surplus which is in direct contrast to the US’s trade deficit – and most EU members.

Following a significant decline in eurozone demand, the country’s manufacturing orders declined in June, with a 4% month on month fall in total factory orders; of that, total foreign orders were 4.7%, with domestic orders 2.8% shy. There is a feeling that current international trade tensions have impacted on business confidence and introduced uncertainty.

The IMF has estimated that India’s economy will grow a credible 7.3% this financial year and 7.5% a year later, driven by resilient investment and solid private consumption. There has been a recent lull following the November 2016 cash ban and the 2017 sales tax introduction but now its economy accounts for a massive 15% of global economic growth. However, it continues to face risks that could derail Prime Minister Modi’s best laid plans including its weakening currency (down 7% to the greenback), higher energy prices, declining tax revenues and the sluggish pace of much needed structural reforms.

To the surprise of some, the Bank of England did unanimously decide to raise its key interest rate to 0.75% from 0.50% – following a similar rise last November. The decision to tighten monetary policy was in line with their bid to curb inflation and return it to “the 2% target at a conventional horizon”. This could be the last tweak with rates for some time. Growth is expected in the region of between 1.4% – 1.8% for the next thirty months.

Although UK housing activity remained soft, July house prices were 1.4% higher, month on month, and 1.3% for the quarter ending July. For the year, prices were 3.3% higher with the average house price now selling at a record high of US$ 299k. For the past three months to June, mortgage approvals rose 1.4% to 65.6k with house sales falling 3.0% in June to 96.3k.

UK Foreign Secretary, Liam Fox, reckons that it is now 60:40 that the UK will fail to agree to a Brexit deal with the EU by next March and is blaming intransigence by the EU for the increased possibility of no deal. He also claimed that Michel Barnier, the EU’s chief negotiator, had already dismissed the proposals, which “makes the chance of no deal greater”. The Brussels mafia has countered by blaming the UK government for failing to make realistic proposals. Even the BoE governor, Mark Carney, has warned that there was a “uncomfortably high” possibility of a no deal Brexit.

Following the US announcing new sanctions on Russia because of their alleged role in the nerve agent attack in the UK in March on Sergei Skripal and his daughter Yulia, the Russian rouble sank to its lowest since November 2016. It fell over 5.3% on Tuesday to 66.7, whilst share values of major Russian companies – including Aeroflot, Rusal and Sberbank – also drifted lower.

President Trump followed up on his re-imposition of Iranian sanctions with a warning to “anyone doing business with Iran will NOT be doing business with the United States”. Earlier in the year, he pulled out of the Iran nuclear deal, described by him the “worst I’ve ever seen” and considers that sanctions will force Iran to agree a new deal.

Not surprisingly, AMP has seen its H1 net profits slump 74.2% to US$ 84 million on the back of its massive compensation and legal costs related to its fee-for-no-service scandal. Australia’s largest financial adviser network may now face criminal charges after it emerged that it had misled the corporate regulator on multiple occasions about a widespread practice of charging many customers fees for services they were not, and could not be, receiving. The country’s financial sector is coming under close scrutiny by a Royal Commission that started its work in March. It has already uncovered many unsavoury and illegal acts carried out by the country’s banks, insurance companies, financial advisers etc, over many years, with a lot more to be revealed. Life is about to become uncomfortable for some of them in The Land Down Under!

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