Cruel Summer

Cruel Summer                                                  21 May 2019

According to Property Finder, there are 136 Dubai projects, encompassing more than 43k residential units, with an expected completion date by the end of 2019: there is also a further 4.1k from 18 other projects, ready for completion by September 2020. Of this total, 33.4 k were apartments, 4.6k villas and 5.6k serviced apartments. This would equate to over 47k over the sixteen months, assuming that all construction has been handed over – historically the figure has been just over 50%. In the first four months of the year, it is estimated that almost 11k have been handed over; last year the number for the twelve months was 23k.

April’s Cavendish Maxwell’s Dubai House Price Index indicates an average 13.2% slump in Dubai property prices over the past twelve months; in certain locations, such as Emirates Living, Dubai Silicon Oasis, Jumeirah Lake Towers and IMPZ, the news was even more depressing with falls in excess of 14%. On a monthly and quarterly comparison, April prices, at US$ 681k, were 1.5% and 4.9% lower.

Arabtec has won another tender from Dubai Properties – this time a US$ 56 million contract to build 322 villas in Villanova, a residential community in Dubailand. This is their sixth project award from the real estate arm of the Ruler of Dubai’s investment vehicle. Completion date should be around early 2021.

Arabtec picked up another contract this week with a US$ 60 million, three-year Indian contract from Raheja Developers for construction in the Navin Minar development. The project will include a 42-storey residential tower and fifteen, fifteen-storey community housing towers, located twenty two km from Delhi airport.

German hotel company, Deutsche Hospitality, has announced its plans to introduce new properties in the UAE and that it will be completely relaunching its luxury brand, Steigenberger Hotels & Resorts; it will also introduce its new brand to Dubai with the 2022 opening of Jaz in the City hotel in Deira, a property with 253 guest rooms.

InterContinental Hotels Group is planning a 30% expansion in its ME room portfolio over the next four years, with 37 properties (and 5.2k rooms) in the pipeline; this will encompass IHG’s many brands including InterContinental Hotels and Resorts, Crowne Plaza, Holiday Inn, Holiday Inn Express, Staybridge Suites and voco. Dubai will see the introduction of yet another brand with opening of the first Hotel Indigo in the Middle East, later in the year. It will also to increase its midscale portfolio in the emirate by the addition of two Staybridge Suites properties.

Due to open between 2021 and 2022, Wyndham Hotels & Resorts will open the country’s first Days Inn and Super 8 branded hotels, as well as a new Wyndham in Dubai; all located on the Deira waterfront, the owner is Ithra, the investment arm of the Dubai government. The hotel group, with 9.2k properties under twenty different brands, has recently acquired the La Quinta label – which has 900 global properties, with a total of 900k keys. Currently, it operates 57 properties (and 11k rooms) in MEA, with a further 21 hotels under development, comprising 4k keys; 23 of these hotels are operated under the Ramada brand.

Landmark Group is set for a major regional expansion as its largest fashion retailer, Centrepoint, plans to open eighteen new outlets over the next twelve months, bringing the total of its shops to 162 in seven countries. The retailer carries four major concepts – Babyshop, Splash, Lifestyle and Shoemart. According to CEO Simon Smith, “our stores of the future will combine features of both online and in-store shopping to offer a seamless and convenient shopping experience.”

Another local casualty of the difficult trading conditions is the Gourmet café chain Pantry Café, closing its three stores in Wasl Square, Jumeirah and Bay Square Business Bay. The four-year old company will shut by the end of May, but no reasons were given. Despite all the problems facing a new entrant in the Dubai F&B sector, last year saw 641 restaurants and 468 cafés open their doors for the first time, bringing the total number to 11.8k in the emirate.

In a bid to protect the wages of its employees, Jebel Ali Free Zone will become the first free zone to return cash and bank guarantees to businesses, via its new Workforce Protection Programme initiative. Commencing in September, it will inject US$ 354 million back into Dubai’s economy that companies can invest in their operations. In the past, companies had to lodge cash or a bank guarantee to provide insurance to their employees in the event of non-payment of wages. Employees will be protected because companies will have to take out insurance to protect the workers in case of wage default.

In recognition of 2019 being designated the Year of Tolerance, JAFZA has decided to waive almost US$ 10 million in fines, owed by its businesses. The authority reckons that this initiative will also support the government’s goal of further enhancing its ease of doing business rating, whilst incentivising new companies and investors. The UAE is currently rated 11th in the World Bank’s Ease of Doing Business ranking.

As DP World continues its expansion of inland operations, it has acquired a 76% stake in the Indian rail logistics company Kribhco Infrastructure, via a JV with India’s sovereign wealth fund; Kribhco will retain the remaining 24% stake. The decade-old company operates container train operations across India, along with three major inland container depots and private freight terminals at Pali in Haryana, Modinagar in Uttar Pradesh and Hazira in Gujarat. DP World already has a large presence in the sub-continent, operating five ports – Mundra, Nhava Sheva, Cochin, Chennai and Visakha,

HH Sheikh Mohammed bin Rashid Al Maktoum has announced that an initial batch of 6.8k people have been granted their new permanent residency status and issued with a gold card. The Ruler indicated that the first tranche of investors and entrepreneurs would hold total investments of US$ 27.2 billion, equating to US$ 4 million per individual. The aim of the exercise is not only to generate foreign investment but also to attract top engineers, scientists, and star students. Sheikh Mohammed also added “Gold Card permanent residence will be awarded to exceptional and talented individuals and to whoever contributes positively to the UAE’s success story. We want those people to be permanent partners in our journey”.

To some, it will come as no surprise to see that Dubai is the most expensive city in the world for internet, at US$ 82 for a month of 8 Mbps internet, according to a recent Deutsche Bank study. Covering 55 cities, the annual survey of global prices and living standards ranks Dubai 14th in monthly salaries (at US$ 2,856) and 11th in disposable income, with San Francisco coming in at number one for both, mainly due to the “rapid growth of the US tech sector”. Interestingly, Dubai was not too expensive for five-star hotel rooms with a view, ranking 29th.

Union Properties has had disastrous Q1 results, reporting a 99% slump in profit to just about breaking even, attributable to mounting finance costs (up 80.4% to US$ 11 million) and losses on investments. The developer, currently in the midst of a restructuring exercise, posted a quarterly loss of US$ 6 million, compared to a US$ 23 million profit over the same period in 2018. So far this year, UP has seen its share price on the DFM down around 22%.

With revenue falling as visitor numbers dip, DXB Entertainments recorded a 3.0% increase in its Q1 deficit to US$ 59 million, as revenue declined 18.0% to US$ 39 million. The operator of the Dubai Parks and Resorts theme parks reported an 11.0% decline in visitor numbers to 760k, of which 45% were from overseas, slightly down on the 60% target; international visitors generally spend more money and bring in higher yields than local residents.

The bourse opened for trading on Sunday 19 May at 2575 and, having ditched 7.6% (212 points) the previous three weeks, closed 15 points higher on Thursday 23 May on 2590. Emaar Properties recovered US$ 0.04 over the week to close on US$ 1.20, with Arabtec, despite the two orders this week, heading in the other direction by US$ 0.03 to US$ 0.41. Thursday 23 May saw wafer thin trading again (typical of the Ramadan period) of 122 million shares, at a value of US$ 48 million, compared to 130 million shares trading at US$ 42 million the previous week.

By Thursday, Brent, having seen 17% swings in both directions over the past three weeks, traded down US$ 5.34 (7.4%) to US$ 67.28. Gold again muddled through the week, shedding only US$ 1 to US$ 1,285.

Huawei was dealt a huge blow earlier in the week when it was announced that their new smartphones will lose access to popular Google apps and that Google has cut it off from some updates to its Android operating system. Furthermore, the Chinese tech firm will also lose Google’s security updates and technical support, and that any of its new devices would no longer have apps such as YouTube and Maps. The previous week, the US President had banned the company from acquiring technology from US firms without government approval. The US is leading a raft of other western countries worried about national security if Huawei has a carte blanche in next-generation 5G mobile networks.

In April 2018, Tesla chief executive Elon Musk confirmed that he had asked his finance team to “comb through every expense worldwide” to find possible cuts. Two months later, 9% of the electric carmaker’s workforce were laid off. In January, a further 7% were shown the door and now he is going to increase scrutiny of expenses to further cut costs at the electric carmaker. Now it seems that after burning US$ 700 million in cash in Q1 – and also just raising a further US$ 2.7 billion via an offering of stock and convertible notes – the company has only to the end of this year to break even. Maybe someone will wake up and see that questions should be asked whether Tesla has the wherewithal to make, sell and deliver enough cars to make a sustainable profit.

Being the largest national operator of Boeing 737 Max aircraft, and the first country in the world to close down their operations, after the second fatal crash in Ethiopia, the Chinese seem to be the first in the queue to file claims against the US plane maker for pay-outs. All of its three airlines -China, China Southern and China Eastern – are claiming compensation for losses incurred by the grounded fleet, and on top of that for delayed deliveries of the 737 Max jets. Boeing has reported that it has completed development of a software update for its 737 Max plane and has subsequently completed over 200 successful flights. The upgrade certification will be handed over to the FAA this week.

The Brazilian cosmetics group Natura, which already owns The Body Shop and Aesop, is to acquire Avon for US$ 2.0 billion in an all-stock deal; the end result is that its shareholders will hold 76% of the new combined entity which will have an annual revenue stream in excess of US$ 10 billion. Now becoming the fourth-largest cosmetics company, it will have 3.2k outlets in over 100 countries. The UK-based direct-selling cosmetics business has been struggling in recent years, as its door to door sales model became outdated and less popular, with e-commerce eating into their market share.

Sir Philip Green‘s retail empire continues to crumble, with an announcement that twenty three Burton, Dorothy Perkins and Topshop stores will close and rents will be cut at another 194 UK stores at his Arcadia group. This is on top of the 200 stores shut over the past three years, as it struggles with a challenging market. Furthermore, the company also plans to shut all its 11 US Topshop and Topman stores. This could be the last throw of the dice for the highly unpopular tycoon as he banks on a US$ 65 million investment from his wife, Tina. Early next month, creditors will vote on whether to accept a series of Company Voluntary Arrangements (CVAs), that will see rents reduced in return for a 20% stake in the company.

Another blow for the UK high street came with news that the Jamie Oliver Restaurant Group – and its subsidiaries Jamie’s Italian, Jamie’s Italian Holdings, One New Change and Fifteen Restaurant – had gone into administration. The owner had already injected US$ 17 million into the failing business in 2017 and has struggled to pay down reported debts of US$ 92 million. Now only three of his twenty-five restaurants remain open, threatening the livelihoods of 1.2k staff. The usual suspects – a soft retail market, economic slowdown and Brexit uncertainty – have been blamed. However, his franchised pizza restaurant in JLT will remain open, as it is a franchise operation licensed by Dubai-based Apparel Group.

Jamie is not alone as the UK high street starts looking like a battlefield, with competitors such as  burger brand Byron, French cuisine chain Cafe Rouge and pizza outlet Prezzo all battling for survival.

Marks & Spencer continue to struggle, with annual pre-tax profits (at 31 March) down by almost 10% to US$ 680 million, as like for like sales dip 2.3% lower; however, figures were somewhat distorted because of Easter falling later than normal. The retailer is in the midst of a major turnaround programme that will see a big store closure program to bring its current number of 1,043 stores down to just above 0.9k within three years.

With its assets’ total at US$ 960 almost equal to that of its liabilities, Thomas Cook’s shares have plummeted 30% to be worth around US$ 0.26; this comes at the same time that the tour operator  issued its third profit warning in less than a year and reported a half-year loss of almost US$ 2.0 billion. Even its auditors, EY, have warned of “material uncertainties” over the group’s sale of its airline, on which a new US$ 400 million bank facility depends. In an attempt to keep the company flying, it is seeking bidders for its fleet of 105 jets, slashing costs and considering the future of its currency arm Thomas Cook Money.

Despite the UK news, it appears that it is business “as usual” in the UAE; the tour operator opened its first regional venture in November 2017 – the Ras Al Khaimah Beach Resort. Three months ago, Thomas Cook India Group invested US$ 41 million for a 51% shareholding in Dubai-based Digiphoto Entertainment Imaging. 

Two major election results this week – in Australia and India. Once again, the polls were proved wrong when Scott Morrison retained his position as the country’s leader. This was good news for the banking sector as shares jumped, with the big four – ANZ, CBA, NBA and Westpac – trading over 5% higher. There had been fears that a Labour victory would see banks suffer because of their pre-election warnings of limiting negative gearing, reducing the capital gains tax discount and tougher restrictions on mortgage brokers. Another sector, healthcare also benefitted with shares in Medibank and NIB up 10% and 9% because the defeated Labour would have limited premium increases to 2%.

By Thursday, it seems that Narendra Modi has won a landslide victory to secure another five years as PM of the world’s largest democracy, India, that saw over 600 million vote in a marathon six-week process. The victory came despite the fact that joblessness is at a record high, farm incomes have plummeted and industrial production has slumped. Furthermore, the economy continues to suffer from Modi’s introduction of a complicated sales tax and his disastrous 2017 demonetisation strategy which was designed to flush out undeclared wealth and black money. The market took the victory in its stride, with the benchmark Sensex index recording a record high of 40,000, with investors gambling that Modi would continue with his business-friendly policies.

The EU technocracy continue to hide their heads in the sand as a major European crisis is brewing that puts the Brexit issue into the second division. The EU growth forecast at 1.4% is just marginally above that of the UK and will be inevitably downgraded if problems persist in two of its powerhouses – Germany and Italy. The former is expected to see growth plummet from 1.8% to just 0.5%, as its manufacturing struggles with slower Chinese demand and disruption caused by the US-China trade war, as well as tougher emissions standards for its car industry.

Italy is the bigger problem as it grapples with recessionary fears, rising government debt and a banking industry in disarray. Its financial credibility lays in tatters as government spending and tax cuts ensure that it will run a deficit and also breach EU rules. Over the last three years, seven banks have been bailed out and estimates put the amount of bad debts on financial institutions’ books at over US$ 300 billion – a comparatively small figure next to the estimated US$ 2 trillion government debt. Then there is France and a summer of discontent in the offing! For many, including Theresa May, the UK Conservative party and some EU governments, 2019 could become a Cruel Summer!

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