Play The Game                                                         01 August 2019

For a welcome change, there was some good news on Dubai’s realty front, with Allsopp & Allsopp noting that the rise in sales prices was “very encouraging for the market”, following months of falling prices. The firm noted that it had witnessed Q2 buyer registration 37% higher, year on year, and up 19% on the previous quarter, as tenant registrations rose 31 % on the year and by 16.5% on a quarterly basis, with transactions rising by 3%. These figures indicate “that the market is either at or heading towards the bottom of the price curve.” The consultancy also noted that there was a 23% increase in Q2 secondary market sales compared to Q1, while sales in the off-plan sector dropped by 30%.

Despite all doomsayers preaching that the end of the Dubai realty sector is nigh, there is still money to be made in the market. According to ValuStrat, the top ten net rental yields range from 6.0% to 8.2%, with International City, Remraam and The Greens posting 8.2%, 7.6% and 7.5% respectively. The average net returns are estimated to be 4.6% for villas and 5.8% for apartments. With rent being the highest cash outlay for many expats – and residential prices continuing to head south – it seems a no-brainer for many to consider buying, especially as interest rates are on a downward trend. Two main factors holding some potential buyers away from the market are job security and high down payment rates. There is no doubt that there has been – and is – an economic slowdown but history will tell that we have always lived in an economic cycle and things will change for the better. The other factor of high entry costs (including the requisite 25% bank down payment) could be changed tomorrow if authorities thought fit. When this happens, prices will automatically start moving north.

Deyaar Development is confident that it will complete two districts – Afnan and Dania – within its five million sq ft Midtown community mega development, by year-end; the whole development comprises 26 buildings. Located in Dubai Production City, Afnan’s seven buildings will house 659 apartments with Dania’s 579 apartments being in six buildings. The developer also announced that its other development – the 18-storey Bella Rose in Dubai Science Park and comprising 478 units – is 28% complete.

Nakheel has launched the first phase of its Nad Al Sheba gated community which will house 1.6k Mediterranean and Moroccan style 4-5 B/R villas. Annual rents start at US$ 32.4k and US$ 34.9k for the two villa models. The development will also have a 5km cycle and jogging track, pool and a community centre, with 200 retail outlets, currently under construction.

Kleindienst Group posted H1 revenue of US$ 155 million for villas in its The Heart of Europe project off the coast of Dubai. The developer, which estimates that here is a latent market demand for over 50k second homes in the UAE alone, announced that two of the islands, in the US$ 5 billion project, are almost 70% complete. Germany Island will have 32 villas, as well as twelve Floating Seahorse villas – underwater living residences. The heart-shaped Honeymoon Island will host over 100 Floating Seahorse villas, four restaurants and bars, adult infinity pool, children’s pool and play area, dive centre and health spa. Phase one is sold out with phases two and three underway.

The recently completed seven-storey Millennium Al Barsha Hotel, operated by Millennium Hotels & Resorts, is scheduled to open this month. The 4-star property, built by Dubai-based Deyaar, will house 109 serviced apartments (93 1 B/R and 16 2 B/R), and 299 hotel rooms (with 15 suites). The same combination was responsible for the Millennium Atria Business Bay, that opened earlier in the year, and will see Millennium Mont Rose serviced apartments in Dubai Science Park opening by year-end.

Luxhabitat reported that the highest value property sold in Q1 was for over US$ 20 million – at The One, Palm Jumeirah. Of the others in the top ten, four were in Emirates Hills (ranging from US$ 10 – US$ 17 million), two Palm Jumeriah Signature Villas (at US$ 11 million and US$ 13 million), a Royal Atlantis Residences apartment for US$ 12 million and two properties in Il Primo, Downtown Dubai for US$ 16 million and US$ 17 million.

In the prime residential market, Arabian Ranches 1, Jumeirah Golf Estates and Downtown Dubai saw transaction values grow by 45.5%, 42.1% percent and 40.5% respectively; values were 3.2% higher at US$ 2.8 million. In Q1, the value of transactions in the secondary market was 5.8% higher at US$ 3.7 billion, with off-plan transactions declining 11.8% to US$ 1.8 billion, quarter on quarter. In Q2, 1.7k villas and 6.4k apartments were sold.

It is estimated business tourism at Dubai World Trade Centre generated a record US$ 3.5 billion, equating to 3.3% of the emirate’s GDP. The latest Economic Impact Assessment’ report indicates that for every US$ 1 spent at the 97 large scale exhibitions and events held last year, a further US$ 4.4 in sales value was generated for ancillary sectors and Dubai’s wider economy. In addition, 1.6 million attended events, that created a total of 879k jobs, which generated an aggregate US$ 1.14bn in disposable household income.

Dubai’s hotels posted their worst quarterly results since 2009, with STR reporting a 0.9% decline in Occupancy to 67.1%, with supply outgrowing demand for the sixth consecutive quarter. Even worse news saw both Average Daily Rate (down 12.3% to US$ 140) and Revenue per Available Room (13.1% lower at US$ 94) at their lowest levels since 2003. It is reported that 500 jobs have recently been cut from Jumeirah Group’s payroll, attributable to a marked decline in the emirate’s tourism sector. The government-owned hotel chain has a portfolio of 24 properties in eight countries.

Most other sectors are feeling the pinch, driven by three main factors – regional geopolitical tensions, relatively low oil prices and a slowdown in global trade. The economy is still in a sluggish phase but could be moving off its bottom. The improvement will be helped by certain government measures, including reducing many business fees and issuing longer-term visas. In a move to attract more foreign investment, enhance the national economy, further boost the business environment and help with liquidity, the Ministry of Economy is to waive or at least reduce fees on 115 of its services, ranging from US$ 27 to US$ 1.4k. They include service fees relating to the national patent programme, trademarks, industrial license services, auditing accounts and commercial agencies.

On 01 August, petrol prices moved higher, following a decision by the UAE’s Fuel Price Committee. Special 95 and diesel will be 3.7% higher at US$ 0.616 a litre and 3.0% to US$ 0.659 respectively.

Al Maktoum International Airport benefitted by the recent closure of Dubai International for 45 days of runway closures, as its H1 passenger traffic increased by 141% to 1.2 million. Over the period, the airport handled 900k passengers (equating to its total 2018 number) and up to eighty daily flights, compared to its normal ten. Russia (with 293k passengers) Saudi Arabia, India and Germany were the top destinations. Citing a “softening of the overall air cargo market”, cargo declined 5.3% to 450k tonnes.

A partnership between Dubai-headquartered Jetex Flight Support and US start-up Wright Electric could see electric planes flying over the emirate as early as next year. Jetex has a network of fixed-based operators in nearly forty global locations and the latest agreement will see it install electric charging infrastructure for electric jets in its extensive network of FBOs; it will also invest in the production of the first electric private business jets.

It is reported that DSA Investments may be forming a venture with a South African labour union to bid for former Glencore coal mines that were sold in 2015 to the once powerful Gupta family. The JV between DSA’s subsidiary, Orchid Mining, and Nehawu Investment Holdings, is expected to bid for Teesta Exploration & Resources (Pty) Ltd, currently under administration. This coal asset had been owned by the Guptas and the son of then President, Jacob Zuma.

DEWA is to invest US$ 2.2 billion, over the next three years, building 68 132/11 kilovolt (kV) substations, as it continues to expand its infrastructure to meet Dubai’s growing power demand At the end of 2018, the emirate had 258 main substations, eighteen of which were commissioned last year at a cost of US$ 600 million. On a global efficiency comparison, DEWA performs well, having managed to reduce losses from electricity transmission and distribution networks to 3.3% (cf 6-7% in Europe and the US), while water network losses have been reduced to 6.5%, compared to 15% in North America. It also achieved the lowest customer minutes lost per year in the world, at 2.39, compared to 15 minutes in Europe.

Last week, Mohammed Alabbar’s Symphony Investments and others established a partnership across the MENA region and China with Didi Chuxing. This week, Toyota announced that it would be investing US$ 600 million in the Beijing-based mobile transportation platform with 550 million users. The Abu Dhabi-based JV will promote sharing economy and internet consumer services in the region. Compared to Uber, the Chinese firm is well ahead when it comes to numbers – 550 million users and 30 million rides per day dwarfs the US entity’s 93 million users and 17 million daily trips.

YTD total loans provided by Emirati banks were 4.3% higher, by US$ 19.2 billion to US$ 461.2 billion, of which loans provided to the private sector were 2.7% up at US$ 272.5 billion. Government and the public sector loans were 11.5% higher by US$ 54.9 billion.

The Dubai Financial Services Authority has fined the collapsed private-equity firm Abraaj Group US$ 315 million for deceiving investors and carrying out unauthorised activities. The authority’s chief executive, Bryan Stirewalt, reiterated that investigations will continue and “those guilty of wrongdoing will be brought to account.” However, the authority has admitted that “the question of whether the DFSA will ever recover any of the fines imposed on them is not clear, for the time being.”

It seems that the Abraaj executives must have been on a basic accounting course when it had insufficient funds to pay all of its creditors. (The top echelon had apparently taken a shed load of money for their personal use but wanted to keep the business afloat). The firm, that once “managed” funds of over US$ 14 billion, prioritised “payments in order of importance, noise makers and those that will come back, with the latest being legacy investors and passive voices.”

The DIFC registered 250 new companies – an 11.0% hike in numbers -bringing the total of active registered firms to 2.3k and a workforce up almost 3% to over 24k. Management is hoping to  increase the number of finance firms by 49% to 1k, to double employees to 50k and increase assets under management to US$ 250 billion by 2024.

Emaar Malls posted a 3.0% hike in H1 profit to US$ 308 million on the back of revenue, being 6.0% higher at US$ 609 million (with Q2 sales 8.0% higher at US$ 314 million). Occupancy amongst its properties – including The Dubai Mall, Dubai Marina Mall, Gold & Diamond Park, Souq Al Bahar and the Community Retail Centres – stood at a credible 92%; total footfall for the first six months of the year was at 2.0% higher at 41 million. The Emaar Properties subsidiary paid a 10% cash dividend of US$ 354 million for the fourth consecutive year.

Due to the implementation of the accounting standard IFRS16 (relating to the treatment of leases), Aramex posted a marginal 0.8% increase in Q2 profit to US$ 27 million. The logistics company posted a 2.5% increase in revenue to US$ 272 million that could have reached 7.0%, if not for currency fluctuations (mainly involving the Australian dollar and South African rand).  Its H1 revenue came in 3.2% higher at US$ 681 million.

DFM-listed Dubai Insurance posted a 49.4% rise in H1 profit to US$ 12 million on the back of a 66.1% jump in total comprehensive income to US$ 15 million. On a quarterly basis, consolidated interim profits nudged 1.9% higher to US$ 5 million. At the end of June, the firm saw its total assets 21.2% higher at US$ 436 million, compared to six months earlier.

The bourse opened on Sunday 28 July at 2851 and having gained 190 points (7.1%) over the past three weeks added a further 49 points (1.7%) to 2900 by 01 August 2019.  Emaar Properties closed US$ 0.06 higher at US$ 1.48, with Arabtec flat again at US$ 0.48. Thursday 01 August witnessed low trading conditions of 115 million shares worth US$ 46 million, (compared to 199 million shares, at a value of US$ 58 million on 25 July).

For the month of July, Emaar climbed US$ 0.29 to US$ 1.51 and US$ 0.38 YTD from its US$ 1.13 starting point. Arabtec was up US$ 0.07 in July to US$ 0.48 but down YTD by US$ 0.04 from its January opening figure of US$ 0.52. YTD, the bourse is trading 370 points (14.6%) higher from its January opening of 2530 and in July gained 259 points (9.7%) from 2659 to its month closing of 2918.

By Thursday, 01 August, Brent, having gained US$ 1.15 (1.9%) the previous week, nudged up US$ 0.12 (0.2%) to US$ 62.05. Gold, having shed US$ 26 (1.8%) the previous week, traded US$ 30 (2.1%) higher on Thursday at US$ 1,444. For the month of July, Brent shed US$ 0.63 (1.0%) to US$ 64.42 but for the first seven months of the year gained US$ 10.62 (19.7%) to US$ 64.42 from its January opening of US$ 53.80. Gold was flat for the month of July – up US$ 2.0 to US$ 1,416 – but gained US$ 131 (10.2%) from its year opening of US$ 1,285 to its 31 July close of US$ 1,416.

If the proposed merger between Just Eat and Dutch rival, Takeaway, takes place, it would create one of the biggest global food delivery firms, valued at US$ 10 billion and processing 360 million orders, worth US$ 8.2 billion. The UK company, which is thought to be the market leader in its home country but is facing stiff competition from the likes of Deliveroo and Uber Eats, trades in overseas locations such as Canada, Europe and Australia where it is known as Skip the Dishes, Just Eat and Menulog respectively. News of the possible merger saw the UK’s company shares jump 25% to almost US$ 10 which had fallen in May, following Amazon’s US$ 710 million investment in Deliveroo.

Airbus seem to be taking advantage of Boeing’s woes, posting a 72% rise in adjusted profit before interest and tax to US$ 2.2 billion. The plane-maker ramped up production of its Neo version of the A320 (a direct competitor to Boeing’s troubled Max 737), with almost 240 being handed over in H1. The company confirmed full year guidance that will see a 15% hike in EBITDA, 890 aircraft deliveries and over US$ 4.5 billion of free cash flow. Its shares have surged over 53% already this year, compared to Boeing’s 7.7%.

Another country has finally seen the light that all is not well with the global economy, by slashing its forecast to 0.9% (from an earlier 1.3%). The Japanese government pointed to weaker exports (at 0.5% compared to the 3.0% expected earlier in the year), as the main driver, not helped by the ongoing US-China trade spat. However, other pundits in the private sector were more pessimistic with predictions of almost half this new figure. In Q1, the world’s third largest economy posted annualised growth of 2.2% but this is expected to slow somewhat over the remainder of 2019, due to increasing external pressure. Latest figures from Japan see industrial output down 3.6% in June, following a 2.0% increase the previous month. On an annualised basis, industrial production slumped 4.1%.

On Monday, the Australian Stock Exchange hit a record 6,826 which had been set in November 2007, just before the GFC. By comparison, the US S&P Index took less than half the time (1,386 days v 2,974 days) to top its pre-GFC high of October 2007 and is now at nearly double that high at 3,026 points. It seems that the Australian companies pay out more dividends and faces higher interest rates which slows its growth somewhat.

Pending US home sales in June rose 2.8% to 108.3, after a 1.1% rise the previous month. The surprising – but welcome – news is an indicator that the US economy is still performing well. With job growth at record levels, and the stock market at an all-time high, along with historic low interest rates, it favours well for the sector in the coming months. Furthermore, after a poor June, with a consumer confidence reading of 124.3, July bounced back to 135.7 – its highest level in 2019. According to officials, “consumers are once again optimistic about current and prospective business and labour market conditions.”

The French economy is grinding to a halt and could prove another nail in the eurozone economic coffin, following a manufacturing slump in the bloc’s largest economy, Germany. Despite the Macron-enforced tax cuts (following the Yellow Vests protests) and a US$ 18.9 billion stimulus package, consumer spending growth has slowed. Q2 growth of only 0.2% disappointed the markets and, with the rest of the eurozone on a downward trend, the ECB chief pointed to another monetary boost by next month, warning the outlook is getting “worse and worse”; Q2 growth is estimated at only 0.2% with Germany now in probable recession.

Meanwhile, July eurozone business confidence fell 0.6, month on month, to 102.7 – a 40-month low. The decline was felt across the board with most indicators – including industrial sentiment, services confidence, consumer sentiment – all heading lower. Construction has been badly hit, with reports of a sharp decrease in managers’ employment expectations, and a marked deterioration in their assessment of the level of order books; the construction sentiment index decreased to 5.0 in July from 7.6 a month earlier. Euro area expanded at the slower pace of 0.2% in Q2, (following 0.4% in Q1), with inflation, at 1.1%, easing to a seventeen-month low, emphasising the need for an updated significant stimulus package; year on year, growth is at 1.1%.

On Wednesday, the Fed lowered the target range for federal funds rate by 25 basis points to 2% to 2.25% – its first rate cut since December 2008. Although not unanimous, with two members preferring no change, the reasons cited for the cut were the implications of global developments for the economic outlook, as well as muted inflation pressures.  Fed Chairman Jerome Powell did indicate that although their assessment of the economy remained largely unchanged, the rate cut was “essentially as a mid-cycle adjustment to policy.”

The CBI confirmed that the UK private sector activity has continued to fall in the quarter to July; with firms posting growth at -9% resulted in the ninth straight rolling quarter of either flat or falling volumes. However, there was a marked decrease in both distribution and manufacturing volumes, whilst services activity showed a slower decline. Whether the advent of a new Prime Minister will impact on these figures, over the next three months, remain to be seen.

Boris Johnson assumed the position of Prime Minister of the United Kingdom on 24 July and how things have changed since the departure of Theresa May. In his first Westminster address, he put the Brussels mafia on the back foot by saying (quite rightly) that “no country that values its independence and, indeed, its self-respect could agree to a treaty that signed away our economic independence and self-government, as this backstop does” The EU wanted a sovereign nation to surrender political control over parts of its territory in ways it could never recover – unless the EU gave permission. The EU will have to give leeway, including no back-stop and other amendments. At long last, Brussels will be dealing with an adversarial negotiator who will stand up to the likes of Jean Claude Juncker and Michel Barnier. The rules of engagement have changed and now on a level playing field, both parties can properly start to Play The Game.