Wrong Side Of The Tracks 18 July 2019

According to Valustrat, average Dubai property prices have slumped 29.3% over the past five years, of which 11.5% has occurred this year and 2.9% in Q2; over the past three months, the declines have ranged from 1.2% to 4.2%. During the preceding twelve months, the best performing of the 26 locations analysed were villas in Palm Jumeirah and Al Furjan, as well as apartments in Dubai Sports City, which all recorded single digit falls. On the flip side, apartments in Palm Jumeirah, Discovery Gardens, and The Greens all posted 15%+ declines. In line with sales, rentals have also seen huge falls. – 26.1% since 2014, 10.7% for the past year and 3.4% in Q2. For those that think there are too many units in the emirate, it must be sobering to see that the consultancy estimates that only 8.5k have been completed so far this year – a long way off initial forecasts of 45k.

On the other hand, a JLL report indicated that both apartment sales and rents fell year on year by 9% and 11% respectively, as villas saw declines of 9% and 5% over the same period. The market is not expected to show much change over the next year and will continue to face downward pressure. However, there will be a shift to more people buying properties rather than renting, as the economics make the former more financially attractive.  Any hope of a boost from the Expo factor is becoming less likely, as its impact has already been factored in current prices.

Their report also expects that recent government initiatives will have a positive impact on Dubai’s real estate sector. The federal government has recently introduced customer-friendly schemes such as the freehold law and the permanent residence system called ‘Golden Card’, the visa fees exemption for children under 18 and free SIM cards for tourists on arrival.

To try and boost the realty sector, twenty foreign investors from across the world have been granted five-year renewable visas; the so-called golden visas were made available to real estate investors whose individual investments in the local real estate market exceeded US$ 1.3 million. Investors can also sponsor family members as part of the deal.

Having announced a bounce in Q1 sales to US$ 136 million, Sobha is targeting to be a US$ 1 billion company within two years. When this milestone occurs, the developer will be looking to a probable IPO. The company is currently developing an eight million sq ft waterfront community which, when completed in four years, will be home to 400 villas, 5k apartments, three hotels, two schools and a 150k sq ft community centre. Sobha is currently planning a second development in a new unnamed Dubai location, with land sales almost finalised.

Emaar is to start construction of the first residential cluster ‘Breeze’, located within its Creek Beach District, adjacent to the Ras Al Khor Wildlife sanctuary. The waterfront project will comprise three clusters of 1-4 B/R apartments, inspired by traditional Middle Eastern architecture. SSH will act as lead consultant, architectural partner and structural engineer.

Of the total H1 18.7k realty transactions, valued at US$ 11.0 billion, Emaar accounted for 25.5% of deals and 29.9% (US$ 3.2 billion) in value. The next two developers, some way behind, were Damac at 1.5k transactions (7.9%), valued at US$ 463 million (4.2%), and Nakheel with 1.1k deals (6.0%) worth US$ 600 million (5.6%). Emaar was also the runaway leader in the off-plan stakes, posting 3.6k transaction worth US$ 2.1 billion and accounting for 46% of the market transactions and 61% in value. They were followed some way off by Dubai Hills Estate LLC, with 1.1k transactions worth US$ 409 million, and Damac posting only 840 transactions, with a total value of US$ 235 million. Making the top five were Azizi (682 deal at US$ 118 million) and Dubai Properties selling 441 units worth US$ 210 million.

Oyo Hotels are launching its Capital O brand in the UAE, with two business premium properties – Capital O 167 Moon Valley Hotel Apartments in Bur Dubai and Capital O 187 Action Hotel in Ras Al Khaimah. Their product price range will be between US$ 55 – US$ 80. The Indian chain, with over 700 hotels in its home country, entered the UAE market last year and hopes to offer 12k rooms in 150 properties by the end of 2020.

Dubai’s June CPI fell by 2.68% to 107.95 over the previous twelve months. The main drivers pushing the inflation rate lower were declines in housing services etc (6.40%) and miscellaneous goods/services (2.26%). On the flip side, there were increases in recreation/culture and tobacco products of 3.29% and 1.93%.

The RTA is to hold its latest online number plate auction for 200 distinctive plates on Sunday. Whether this sale reaches the giddy heights of 2017, when an eighty-plate sale raised US$ 7.6 million (with R13 going for US$ 796k), remains to be seen.

Despite attempts by the local carrier Aeromexico, Emirates will launch a new flight to Mexico City, via Barcelona, starting on 09 December. Flying a two class Boeing 777-200LR, it will carry 302 passengers (including 38 in business class) and 14 tonnes of cargo. Emirates has been flying into the city for the past five years, as a cargo carrier, and last year carried over 22.5k tonnes. Because of the height of Mexico City (at 2.25k metres above sea level), it would have been impossible to fly direct so Emirates were allowed to introduce a fifth freedom flight which allows an airline to  fly between two foreign countries, so long as the flight originates or ends in the airline’s home country.

The RTA has announced that the work being carried out at the junction of Umm Sequim Street and Al Khail Road will be completed by the end of H1 2020. The project includes twelve bridges (spanning 3.7k sq mt) and ramps and will ease the traffic that will be generated when the two million sq ft Dubai Hills Mall opens and Dubai Hills Estate starts to fill up with new residents.

The Ministry of Economy has cancelled fees for 102 government services in the country, as well as halving eight service fees, in a move to boost the country’s business environment. No doubt these moves will help stimulate and strengthen economic growth and, hopefully, generate more job opportunities. Some of the fees that have been reduced include registration and renewal of a trademark or trademarks, down 33% to US$ 1.8k, and the fee for publishing official announcements by foreign private joint stock companies has been halved to US$ 2.7k.

Emirates NBD posted a 49.0% hike in H1 profit to over US$ 2.0 billion, as income climbed to US$ 2.6 billion – an 11.3% increase, compared to the same period in 2018. Net interest was 10.0% higher at US$ 1.9 billion, driven by a 13.0% growth in assets, although costs were up some 7.0% to US$ 780 million. There were also increases in loans by 3% to US$ 91.8 billion, with deposits 5% higher at US$ 100 billion.

This week, Dubai’s largest bank also announced plans to open twenty more branches in Saudi Arabia, in addition to the two already open in Jeddah and Khobar, Dubai’s biggest bank will also expand its operations in Egypt and only last month received regulatory approvals to buy Moscow-based Sberbank’s wholly-owned unit in Turkey.

The Ministry of Economy has cancelled fees for 102 government services in the country, as well as halving eight service fees, in a move to boost the country’s business environment. No doubt these moves will help stimulate and strengthen economic growth and, hopefully, generate more job opportunities. Some of the fees that have been reduced include registration and renewal of a trademark or trademarks down 33% to US$ 1.8k and the fee of publishing official announcements by foreign private joint stock companies has been halved to US$ 2.7k.

In Australia, a NSW government report has highlighted the regular occurrence of a “loyalty tax” in the insurance sector, with discounts bEmirates NBD DP World eing offered to new customers while long-term ones pay more for the same policy. It is estimated that in some cases the “gap” could be as high as 34%! The same practice seems to be prevalent in both the banking and energy sectors. In the UK, the CMA estimates the total cost of “loyalty taxes” – in mortgage, savings, home insurance, mobile phone contracts and broadband – is over US$ 5.3 billion a year. It would be interesting to see what is happening in the UAE.

Nasdaq listed a US$ 1.3 billion combined sukuk (US$ 1.0 billion) and conventional bond (US$ 300 million) package for DP World., making the port operator the bourse’s largest client with listings of US$ 8.1 billion.   Nasdaq, two-thirds owned by the DFM and the balance with Borse Dubai, is one of the largest global exchanges for Sukuk listings, with a total of US$ 62.4 billion.  

The Commercial Bank of Dubai confirmed that it had provided a secured credit facility to Abraaj Holdings, including a legal charge over shares that controlled Spinneys Egypt. When the Egyptian entity is sold, funds will be routed back to the bank in partial settlement of the debt. CBD also denied that it had ever owned the Egyptian supermarket.Nasdaq

Emirates NBD posted a 49.0% hike in H1 profit to over US$ 2.0 billion, as income climbed to US$ 2.6 billion – an 11.3% increase, compared to the same period in 2018. Net interest was 10.0% higher at US$ 1.9 billion, driven by a 13.0% growth in assets, although costs were up some 7.0% to US$ 780 million. There were also increases in loans by 3% to US$ 91.8 billion, with deposits 5% higher at US$ 1.0 billion.

This week, Dubai’s largest bank also announced plans to open twenty more branches in Saudi Arabia, in addition to the two already open in Jeddah and Khobar, Dubai’s biggest bank will also expand its operations in Egypt and only last month received regulatory approvals to buy Moscow-based Sberbank’s wholly-owned unit in Turkey.

Amlak Finance is confident that its second restructuring plan will soon be in place. The amended deal will see creditors rescheduling US$ 1.2 billion of loan repayments over the originally agreed period that ends in 2026. The company, 45% owned by Emaar, first agreed to new terms on US$ 2.7 billion of loans in 2014. The hope is that next year’s Expo and rising energy prices, may start to revive the lacklustre Dubai real estate sector which has seen property prices slump by nearly 30% since its 2014 peak.

Dubai Parks and Resorts has posted a 4.7% hike in Q2 numbers to 641k, helped by the fact that that 92k attended over a four-day June celebration for the Philippines Independence Day. Over the first six month of the year, numbers dipped 0.8% to 1.4 million; of that total around 40% were international visitors. In June, a new 579-key Rove Hotel opened and will be competition to the existing Lapita Hotel which saw H1 occupancy levels 8% higher at 63%.

The bourse opened on Sunday 14 July at 2686 and having gained 25 points (0.9%) a week earlier added a further 77 points (2.9%) to 2763 by 18 July 2019. Emaar Properties closed US$ 0.04 higher at US$ 1.33, with Arabtec up US$ 0.03 to US$ 0.48. Thursday 18 July again witnessed very low trading conditions of only 167 million shares worth US$ 92 million, (compared to 88 million shares, at a value of US$ 61 million on 11 July).

By Thursday, 18 July, Brent, having traded US$ 3.22 (5.1%) higher the previous week lost more than that this week, down US$ 4.59 (6.9%) to US$ 61.93. Gold closed US$ 33 (2.3%) higher at US$ 1,440, still driven by continuing tensions in the Gulf and trade worries.

It seems highly likely that Rio Tinto’s massive copper and gold mine in Mongolia could be facing a cost blow-out of almost US$ 2 billion, along with a thirty-month delay. The underground mine – a JV with Rio and a Canadian miner, along with the Mongolian government – could cost US$ 7.0 billion by 2023 as a result of the possibility of stability risk with the mine design. Worryingly, there is every chance that costs could rise even further.

Reports indicate that luxury department store Barneys New York Inc is going the way of Sears Holdings Inc, Toys “R” Us Inc and Gymboree Group Inc. The usual drivers of high rents and changing consumer demands are the reasons for the nearly century-old department store, considering a bankruptcy filing. Apart from its flagship department store on Madison Avenue in Manhattan, the retailer has other interests including BarneRio Tintoys Warehouse outlets, as well as Freds restaurants, in 28 nationwide locations.

Because of its backlisting by the Trump administration, Huawei is planning extensive layoffs in the country. The Chinese telecoms equipment company is looking to cutting large numbers from its 850-workfotrce R&D subsidiary, Futurewei Technologies. Although, the Commerce Department has put Huawei on its so-called entity list, Commerce Secretary Wilbur Ross has indicated that the government would issue licences to companies seeking to sell goods to Huawei where there was no threat to national security.

It is reported that Facebook could face a penalty of over US$ 5 billion to settle an investigation into data privacy violations in relation to its role with political consultancy Cambridge Analytica prior to the last US presidential election The Federal Trade Commission has been investigating allegations that the company improperly obtained the data of up to 87 million Facebook users. Facebook had signed a 2011 agreement which it was required to clearly notify users and gain “express consent” to share their data which in this case never occurred. The tech company has already provided for this fine in its previous accounts. Last October, Mark Zuckerberg received a slap on the wrist from the UK authorities who issued a US$ 650 million fine for a “serious breach” of the law.

Another problem facing Facebook is theFacebook US Treasury is concerned that, as is the case with other cryptocurrencies, its planned Libra e-currency could be used by “money launderers and terrorist financiers” and is was a national security issue. Indeed, US Treasury Secretary, Steven Mnuchin has indicated that he was “not comfortable today” about digital currency and that Facebook was a “long way away from” securing approval.

Christine Lagarde has resigned her position as MD of the IMF in a move that will speed up her likely appointment as head of the European Central Bank; it is a position she has held since 2011 when she replaced the disgraced Dominique Strauss Khan. Post-war protocol would point to an appointment of a European appointment as there is an unwritten agreement that a US candidate always fills the position at the World Bank, whilst the IMF nominee comes from the other side of the “pond”.

Pakistan’s central bank raised its main policy rate by 100 bp to 13.25%, attributable to increased inflationary pressures (currently at 8.9% but expected to climb as high as 12% this fiscal year), as higher utility costs kick in. Earlier in the month, the Imran Khan government received a US$ 6.0 billion IMF loan package that came with tough conditions aimed at increasing the country’s shrinking currency reserves (now at US$ 8 billion following receipt of the first tranche of the IMF loan) and cutting the country’s worryingly high fiscal and current account deficits. Over the next twelve months, GDP growth is expected to be 3.5%.

It seems that Germany’s economy will remain in the doldrums for the immediate future, with the Economic Ministry indicating that “the current economic indicators signal a subdued development in the second quarter”. After a relatively strong 0.4% growth in Q1, the Bundesbank downgraded its growth outlook for 2019 to 0.6% from 1.6% and that for next year to 1.2% from 1.6%. In line with other major countries, the economy is facing headwinds blown in by Brexit uncertainty, a slowing global trade and geopolitical factors.

As the lead indicator that US consumer spending is improving even more, retail sales (3.4% year on year) increased more than expected in June. Add rising underlying inflation and a tight labour market to the mix, it seems unlikely that the Fed will make any move to cutting rates at their 30 July meeting. This week, Jerome Powell indicated that the Fed would “act as appropriate” to protect the economy from the impact of the spat with China and slowing global growth. It must be remembered that comparative annual figures will be slightly skewed becauseof the impact of President Trump’s 2017 massive tax cuts losing their impetus and a slowdown in government spending.

Despite Brexit, UK annual wage growth at 3.8% was at its highest rate since 2008, as wages continue to outpace inflation which has been the case since March 2018. With a record 32.75 million in the workforce, 1.29 million were unemployed – its lowest level since 1992. Furthermore, the number of self-employed climbed above 1.5 million – more than double the figure of twenty-five years ago. Two recent initiatives have helped this improvement – the new National Living Wage and National Minimum Wage rates being introduced and some NHS staff receiving pay increases. The question now is for how long can it last?

In the UK, the Office for Budget Responsibility seems to have joined the “Brexit-fear camp”, by claiming that public borrowing could double to over US$ 78 billion next year if there is a no-deal with the EU. It based its forecast on assumptions, from the IMF, that a no-deal Brexit would cause a UK recession that would see a 2.0% GDP contraction next year. The IMF, not known for accurate predictions, expect that 4% tariffs will impact on UK’s trade, with the OBR concerned that “heightened uncertainty and declining confidence” would deter investment and that sterling will sink, resulting in a recession bigger than that of 2008. However, these warnings seem in line with the Bank of England’s and the Chancellor’s forecasts pre the Brexit referendum three years ago. Six months later, Mark Carney was left eating humble pie, admitting that his dire predictions of the economy had been hopelessly wrong and based on “wrong” assumptions. Once again, the so-called “experts”  are on the Wrong Side Of The Tracks.