A New Day Has Come

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The holy month of Ramadan saw a 51.1% jump in off-plan property deals to US$ 1.5 billion compared to the same period in 2018. Property Finder also reported that, surprisingly, the overall average price at US$ 335k was 13.4% higher than last year. The more popular locations were Downtown Dubai, Meydan One and The Lagoons in Dubai Creek Harbour. However, the secondary market was found to be less buoyant, with the total amount of deals at US$ 828 million – 36.0% lower. Compared to the same holiday period last year, the number of transactions actually increased by 15.1% to 3.1k. (Last year, 8.0% of all overall property sales transactions occurred during the Ramadan period).

Recent government moves to boost the emirate’s realty sector seem to have had a positive effect. According to the Dubai Land Department, there was a 33% jump in the value of real estate transactions, to US$ 9.3 billion, during the first five months of 2019. This total was split into three – residential/commercial apartments, land purchases and villas accounting for US$ 4.6 billion, US$ 3.9 billion and US$ 815 million.

Although the realty sector has still not achieved mature status, it has come a long way from the “flipping days”, when substantial profits were made, banks were “giving away” mortgages and every release was sold out in minutes. It is worth noting that historically, prices have tended to over- as well as under – shoot their fair market value for prolonged periods. This is especially the case in rapidly urbanising locations, such as Dubai, as well as during times of increasing interest rates. Despite all the doomsayers, it has to be remembered that an estimated 70k residential units have been handed over in the past four years, with a probable 30k in 2019. That comes to a total 100k – or just 20k a year. With a 30.6% population increase of 3.2 million for the four years to the end of 2018 (2.45 million – 2015), the number of residential units has increased 23.7% from 503k to 622k over the same timeframe.  

It seems that many pessimists, that believe that there is no end in sight to the current downturn, have yet to realise that the economy works through cycles – they will have to start believing that there will be an end to this downturn – and it will be in the next twelve months. It is unlikely that property will ever return to the peaks of five years ago, but they will definitely move north.

Omniyat announced that it expects Anwa, its new Dubai Maritime City development, to be handed over in Q2 2020, six years after breaking ground there. The US$ 163 million project comprises 223 sea-view apartments, along with 8.1k sq ft of retail space.

It is reported that the RTA is seriously studying the possibility of a futuristic elevated rail system that could reach cruising speeds in excess of 100 kph. Skytran, an environmentally friendly electric and highly efficient transport system, moves along the track on a cushion of air; the track, which stands 30’ off the ground and is supported by small concrete foundations and support poles just every 50 mt, is fabricated and assembled off-site.  Accordingly, when a decision has been made, it will take little time for the venture to get off the ground.

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DP World is closely watching developments in Russia, as it mulls over whether to operate ports along the country’s Arctic sea route. The northern sea route is growing in popularity as it shortens shipping times between east and west. This week, the Russian Direct Investment Fund, state nuclear firm Rosatom and nickel and palladium producer Nornickel signed an agreement to develop the area. The Dubai-based operator already has 78 terminals around the world, as well as fifty related businesses in more than forty countries – but as of yet not in Russia.

It seems that Damac Properties is in the running to acquire the Italian luxury fashion company, Roberto Cavalli Group, but is facing stiff competition from another Italian fashion group OTB, the only other candidate in the running. Italian investment fund Clessidra SGR acquired a 90% stake two years ago and relaunched the almost 40-year old company.

HH Sheikh Mohammed bin Rashid Al Maktoum has enacted a new DIFC Insolvency Law which clarifies the requirements of all stakeholders in the context of distressed and bankruptcy related situations as well as facilitating a more efficient and robust bankruptcy restructuring system. The law, which is in line with best international practice, also provides for action to be taken where there is evidence of mismanagement or misconduct. It will be effective from August and comes after the collapse of Dubai-based private equity firm Abraaj, which had a DIFC-regulated entity – Abraaj Capital.

Three more former Abraaj executives have been charged by US authorities for participating in a massive international scheme to defraud investors; they have been named as managing partner Waqar Siddique, vice president Rafique Lakhani and CFO Ashish Dave. The prosecutors allege that from about 2014, executives had lied about the performance of Abraaj’s funds, inflating their value by more than US$ 500 million, with “at least hundreds of millions” of investor funds being misappropriated, either to disguise liquidity shortfalls or for the personal benefit of executives.

The country is going through further consolidation in the already over-banked UAE which has too many entities (over sixty) to cater for a nine million or so population. Recent activity has seen a planned tie-up of three Abu Dhabi institutions (ADCB, Union National Bank and Al Hilal Bank), coming after the government combined two of its largest lenders in 2017 (FGB and NBAD). Now there is continued speculation about the future of FAB and ADIB. Dubai Islamic Bank approved a plan this week to proceed with the acquisition of smaller rival Noor Bank, both of which are controlled by Dubai’s main holding company.

The common factor to date is that most mergers have come about from government-owned banks which in theory is a much easier process than when dealing with publicly-owned institutions However, the need to face increasing competition in the digital age from “disruptors”, along with the urgent requirement to cut costs and improve profitability, will ultimately see increased consolidation in this sector.

What follows next in the financial sector? Insurance companies, accounting firms, property agents and financial advisers are already being lined up in the next wave of much smaller mergers but with the same three aims – increased efficiency, reduced costs and to take advantage of the new digital age.

Despite all the doom and gloom in the market, Dubai saw its Q1 non-oil foreign trade jump by 7.0% to US$ 92.2 billion, compared to the same period in 2018. Of that total, imports were 4.0% higher at US$ 51.8 billion, exports a welcome and impressive 30.0% up at US$ 11.5 billion and reexports 7.0% up at US$ 28.9 billion. Although free zone trade came in 20% higher at US$ 40.0 billion, there were falls of 0.5% and 21.0% in direct trade to US$ 51.5 billion and customs warehousing to US$ 627 million. The top three trading countries by value remain the same – China being the biggest partner, followed by India and the US.

Another report on the local economy is more bullish than some earlier studies indicating that MENA economies are set to expand at their fastest pace since 2016. Focus Economics reckons that local economies will be flat this year at 1.6%, (1.6% and 1.4% in 2018 and 2017), before reaching 2.8% next year. The main drivers behind the downturn are a slowing global economy and trade risks. However, the UAE is the star regional performer with a 2.6% hike expected this year followed by 3.5% in 2020. Three main factors are a raft of business-friendly and cost-effective reforms introduced by the federal government, a US$ 13.6 billion Abu Dhabi stimulus package and a boost from infrastructure expenditure ahead of Expo 2020.

Driven by a surge in new business orders, UAE’s non-oil private sector economy grew at its fastest pace since October 2014; the May headline seasonally adjusted Emirates NBD PMI jumped 1.8 to 59.4, month on month and was the third consecutive month that the index had headed north. Business confidence is still almost at a record high, with solid returns being posted by stronger market demand, marketing activity and the start of new projects. However, with export orders moving higher and price discounting continuing, this helped the jump in both output and new orders. Another worry was that unemployment continued almost flat with no noticeable sign that it will move higher at least in the short term.

Equitativa Limited has posted an US$ 8 million fall in Q1 profit, to US$ 2 million, compared to the same period in 2018, due to the absence of valuation gains; however, there were increases in its property income – up 8.4% to US$ 18 million – and portfolio value, 8.0% higher at US$ 941 million. The company, that manages Emirates REIT Limited, is the largest GCC Reit manager and expects improvements in 2019 results, with the soft opening of Index Mall this month and the opening of DIFC’s Gate Avenue, as well a jump in occupancy at its Index Tower from its current 52% usage.

Following its April listing on the London Stock exchange, Network International has joined the FTSE 250 Index of London-traded equities. The payments company, 51% owned by Emirates NBD and 49% by private equity companies, Warburg Pincus and General Atlantic, is now the biggest digital commerce company on the benchmark measure, compiled by global index provider FTSE Russell. At the time of its listing, the company was valued at US$ 2.2 billion.

The bourse opened after the Eid Al Adha holiday on Sunday 09 June at 2620, having closed 45 points (1.7%) to the good over the previous fortnight’s trading to 31 May 2019. Over the week ending Thursday 13 June, the market was 13 points higher at 2633. Emaar Properties closed flat on US$ 1.22, with Arabtec US$ 0.01 lower at US$ 0.41. Thursday 13 June had seen wafer thin trading again of 176 million shares worth US$ 56 million, (compared to 159 million shares, at a value of US$ 56 million on 31 May).

By Thursday, 13 June, Brent, having traded down US$ 10.95 (15.1%) the previous three weeks was US$ 0.37 (0.6%) lower at US$ 61.40. Gold, up US$ 51 (3.9%) the previous week, lost a little lustre this week trading US$ 4 down to US$ 61.40. Brent had been trading below US$ 60 for most of the week but recovered somewhat on Thursday on news that two oil tankers have been significantly damaged in suspected attacks in the Gulf of Oman; these attacks occurred a month after four oil tankers were struck off the UAE coast.

Norway’s sovereign wealth fund seems likely to pull billions of dollars from many of its investments in coal companies, as well as oil explorers and producers, Parliament has approved a tightening of its investment rules that will see over US$ 8 billion being offloaded in companies, including Anglo American, BHP, South32 and AGL Energy. This follows the US$ 6 billion shed in 2015 when the fund first introduced its coal exclusion criteria. The new rules will also see the SWF investing in in any company that derives more than 30% of its income from coal,as well as entities that mine more than 20 tonnes of coal annually or generate power of more than 10GW.

One company in which the Norwegian fund will not be investing is Adani Enterprises. The Indian company received the go-ahead to start construction of a controversial coal mine, after the Queensland government approved a final permit on ground water management. Adani first acquired the Carmichael mine in 2010 and has since been mired in all sorts of environmental problems and green concerns. The US$ 1.5 billion project is expected to produce 8 -10 million tonnes of thermal coal a year.

There is no doubt that Uber is passing through turbulent times, with the latest news that two top executives will be leaving the ride hailing company. Barney Harford, the chief operating officer, and Rebecca Messina, the chief marketing officer, are on the way out with the former’s position being eliminated, as chief executive Dara Khosrowshahi takes a more hands-on approach.

Pakistan’s “Mr Ten Percent” has been taken into police custody in Islamabad. It is alleged that the husband of assassinated former prime minister Benazir Bhutto, Zadari has laundered vast sums of money through suspect bank accounts and companies, with investigations indicating that at least US$ 400 million had passed through “thousands of false accounts”. If he were found guilty, it would not be the first time that he has seen life behind bars, having once been jailed for eleven years for corruption. He is not the only political foe of Prime Minister Imran Khan to face the law, as former leader Nawaz Sharif is also currently languishing, having been incarcerated for seven years last year – also on corruption charges.

Sir Philip Green lives to fight another day as both landlords and suppliers backed a deal that saved his retail empire, Arcadia whose brands include Topman, Dorothy Perkins and Wallis. A narrow victory saw many landlords reducing their shop rents and creditors agreeing to a deal that would see them take over 20% of the company in a debt reduction scheme.

In May, Australia’s unemployment rate remained on 5.2% and despite a 66% participation rate (indicating a record number in work), hours worked actually fell. Over the month, part-time employment increased by 40k while full-time employment only rose by just over 2k. These figures point to the fact that weaker employment growth, at least in the short-term, will continue.

Lower than expected May employment figures – at 75k – along with slowing wage growth, may be the catalyst for the Fed to drop interest rates sooner rather than later; April figures were revised downwards to 225k. Other indicators – including falling retail sales, factory output and home purchases – show that the economy may be cooling. May also saw companies adding the fewest workers since 2010.

In Germany, April industrial production fell by 1.9%, month on month, as exports dipped 0.5% over the year. These are but two indicators that point to the fact that the economy is heading for major trouble. At the beginning of the year, the Bundesbank was expecting annual growth of 1.6% and have now slashed this forecast to just 0.6% – and even then, it may be a little optimistic. It does expect the economy to decline in Q2 before nudging marginally higher later in the year. The European powerhouse relies a lot on exports to both China and the US and the current impasse between the two countries are having a negative impact on its economy. Their problems will be further exacerbated if President Trump went ahead with tariffs on car imports.

There is every chance that the EU will take Italy to task for not adhering to the bloc’s spending rules. Last year, the Italian public debt had ballooned out to 130% of its GDP – well above the 60% limit set by Brussels. In all likelihood, it will deteriorate even further over the next two years and this has prompted the EC to urge the Giuseppe Conte government to take immediate action to reduce debt, saying there needed to be a “renewed reform effort, not spending more where there is no fiscal space to do so”. Once again, the bloc’s demagogues will bend the rules to accommodate its third biggest economy and will not levy a fine that should have been in the region of US$ 3.4 billion.

The UK economy turned downwards in April, with manufacturing output slumping following the stockpiling that took place prior to the 31 March original Brexit timetable that did not materialise. With car factories also halting work during the month, leading to 45% fewer cars made compared to the preceding April, there was a 1.4% decline in production, month on month – the biggest fall in over two years. Undoubtedly, Q2 growth will reflect these dismal figures and will do well just to avoid a negative return, with a 0.2% expansion the best to hope for.

Interestingly, a 104-year old multinational internet and media group South African company, with a 31% stake, is the largest shareholder in Tencent Holdings, having made an US$ 31 million investment in the Chinese company in 2001. This investment has been the main driver behind the success of Naspers and obviously overshadows the operational aspects of its core business in internet communication, entertainment, gaming and e-commerce.

At the G20 finance ministers’ meeting in Japan, the IMF supremo, Christine Lagarde, has again voiced her concern on the possible impact that the giant tech companies could have on the world’s financial system. She is concerned – and rightly so – that such firms “will use their enormous customer bases and deep pockets to offer financial products based on big data and artificial intelligence”. To drive the point home, it is estimated that Alibaba’s Alipay and WeChat Pay by Tencent Holdings account for 93% of China’s mobile payment segment. Nothing can compete with these two which have been likened to WhatsApp, Facebook, PayPal, Uber, and GrubHub all into one app.  The Chinese are now ahead of the curve and for the tech sector, A New Day Has Come.

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