The World’s Gone Crazy!

The World’s Gone Crazy!                                          22 August 2019

Property Finder reports that villa transactions have increased 35% in H1, although prices are 4.3% lower than H2 2018, to US$ 233 per sq ft, driven by more affordable properties entering the market; three of the more popular  communities are Dubai South, Dubailand and Town Square, taking business away from the likes of JLT. Sales price declines were more felt in Damac Hills, Emirates Hills and Green Community Motor City, with falls of 8.2%, 6.6% and 5.4% respectively. Prices in locations such as Living Legends, District One, Mirdif and Green Community DIP remained flat.

H1 apartment sale prices fell 3.9% compared to H2 2018 (and 11.7% over the past two years), with sales transactions 5% lower. 6.5%+ declines were seen in Al Sufouh (10.5%), Remraam (9.6%), Downtown Dubai (7.4%), Old Town (7.2%) and Jumeirah Lakes Towers (6.5%). Prices remained flat in Mirdif, Jumeirah Village Triangle, Dubai South, Arjan and Al Furjan.

Azizi Developments still plan to deliver 4k residential units from nine of its Dubai projects by the end of 2019; five are located in Al Furjan. The developer has already completed thirteen projects comprising 41 buildings and six shopping centres.

Damac is in discussions with DICO Properties to acquire two plots of land in Al Sufouh and Business Bay; no financial details were made available. The developer posted an 86.6% slump in Q2 profits to US$ 14 million, with revenue down 45.0% to US$ 265 million. In H1, Damac delivered almost 1.5k units (1.0% lower than the same period in 2018) which included the first phase of its signature master development Akoya, and two of its projects – Ghalia and Tower 108.

Paramount Dubai will launch the emirate’s first Hollywood-themed hotel one month later than planned at the end of next month. The property, located in Business Bay, has 823 rooms and features immersive video walls in the lobby and a Paramount Screening Room. Its superior rooms will be based on a number of the studio’s epic films, including the Great Gatsby Suite and The Godfather Suite.

Maison Privee has signed a preferred partner relationship with Gulf Sotheby’s International Realty that will see the vacation rental provider for the luxury hospitality sector manage a US$ 100 million portfolio of several Palm Jumeirah luxury signature villas. Maison Privee aims to become the largest operator of luxury properties in the country and deals like this might see this happening sooner than many expect. Buoyed by last year’s US$ 4 million Series A funding, it is building the right infrastructure to support faster growth.

According to KPMG’s Global Construction Survey, the sector is expecting growth of between 6–10% this year, as well as being confident that governance and technology are likely to play a significant role in the near future. The report’s findings include that technology – including the use of robots, smart tools and equipment as well as unmanned aerial vehicles – will lead to many jobs, currently undertaken by labour, being automated.

However, it faces two main threats – time and cost overruns as well as obtaining finance.

Dubai saw its H1 visitor numbers jump 3.0% to 8.4 million, with the three leading source markets being India, Saudi Arabia and the UK, with 997k, 755k and 588k respectively.  A positive sign is the 11.0% increase in Chinese numbers to 501k which will continue to head north in the future. The emirate now has 714 touristic properties, with a room portfolio of over 118k – 6.0% up over the past year; average hotel occupancy stands at 76%, with 15.7 million occupied room nights, a 5.0% annual increase.

In H1, Dubai’s Department of Economic Development issued a record 14.7k new licences, of which 7.6k were commercial and 6.7k professional. The five leading nationalities applying for new licences were Indians, Bangladeshis, Pakistanis, Egyptians and British. The DED also announced that every day at least one coffee shop and two restaurants open in Dubai, with 258 restaurants and 169 coffee shops starting business in the first four months of the year.

Over the past twelve months, the UAE central bank has reduced its holdings of the US Treasuries by US$ 8.1 billion (13.6%) to US$ 51 5 billion – and 3.2%, month on month – making it the 22nd on a global ranking. Rather surprisingly, Japan, with US$ 1.12 trillion, edges out China’s US$ 1.11 trillion, as the global leaders of foreign holders of the US Treasuries.

Emaar Properties posted a 51.6 % hike in H1 Dubai sales to US$ 2.6 billion, helping the company achieve profits of US$ 847 million. Total H1 revenue, including international operations, was at US$ 3.2 billion with a US$ 13.4 billion sales backlog. Its international operations saw revenue contribution 12.5% higher at US$ 475 million accounting for 14.8% of total sales. It is estimated that the developer’s investment in other subsidiaries – including its hospitality & leisure, entertainment and commercial leasing business and Emaar Malls – contributed US$ 965 million, equating to 31% of total revenue.

The H1 results also indicated the progress of two other projects in which the developer was involved. In April, it acquired the final 35% of development management company Mirage that it did not already own for US$ 18 million, having paid US$ 34 million for the initial 65% in October 2015. Mirage, founded by Dene Murphy in 1995, has already developed several high hospitality projects such as the Opera House, The Address Downtown and The Island.

It also shed more light on its May US$ 6.8 billion Mina Rashid JV with DP World, entailing a mixed-use project comprising a yacht club, 12.6k sq mt of new beachfront and a waterfront retail and leisure scheme, billed as “The Dubai Mall by the sea”. It is reported that Emaar took control of the venture in June paying US$ 348 million for land and agreeing to share 30% of any future profits made from Mina Rashid over the project’s lifespan.

Topaz Energy and Marine, which was acquired for US$ 1.1 billion by DP World last month, saw Q2 revenue climb 42.4% to US$ 121 million, driving net profit after exceptions to US$ 25 million (compared to a US$ 1 million loss in the same period in 2018). Over H1, revenue was up 56% at US$ 235 million, with EBITDA 83% higher at US$ 141 million.

Meanwhile DP World posted a 10.8% hike in H1 revenue to US$ 3.4 billion, (some of which was attributable to recent acquisitions), as profit jumped 26.8% to US$ 753 million. Despite the uncertainty facing global trade, because of global trade disputes and regional geopolitics, the port operator is confident of reaching its year end targets. With its 2019 capex guidance still at US$ 1.4 billion, DP World has further investments planned in the UAE, Posorja in Ecuador, Berbera in Somaliland, Sokhna in Egypt, and London Gateway.

The bourse opened on Sunday 18 August and, having shed 104 points (3.6%) the previous fortnight, lost a further 27 points (1.0%) to 2769 by 22 August 2019. Emaar Properties, having lost US$ 0.07 the previous fortnight, was a further US$ 0.05 lower to close on US$ 1.36, with Arabtec flat at US$ 0.45. Thursday 22 August witnessed very low trading conditions of 70 million shares, worth US$ 29 million, (compared to 91 million shares, at a value of US$ 34 million on 15 August).

By Thursday, 22 August, Brent, having gained US$ 0.85 (1.5%) the previous week, was US$ 1.76 (3.0%) higher at US$ 59.99. Gold, having jumped US$ 117 (8.3%) the previous fortnight, lost US$ 23 (1.5%), to close on Thursday at US$ 1,508. 

In September 2017, an engine explosion on an Air France A380 took place over Greenland, with a titanium alloy part, the centrepiece of a 3 mt- wide fan, falling to the ground. This has recently been recovered and has led investigators to study a possible manufacturing flaw that could possibly lead to urgent checks on dozens of Airbus superjumbos, that have carried out a certain number of flights.  BEA, the French air accident agency, reported a “sub-surface fatigue crack” on the recovered part and the US engine maker was preparing checks.

The Australian Securities and Investments Commission is suing one of the four big banks in the country, National Australian Bank, over failures with its defective home loan “introducer’ programme. The allegations are that the bank accepted sometimes false information and documents from third party introducers (including accountants, tailors, gym workers and real estate agents) who were not licensed to engage in credit activity. This case revolves around commission being paid by sixteen bankers to 25 unlicensed people involving 297 loans between 2013-2016.  However, ASIC believes that over this time period, the practice brought in 46k loans, worth US$ 16.8 billion for NAB, who could now be facing fines of up to US$ 350 million for their shady operations.

It seems that Deutsche Bank has got off lightly, having only been fined US$16 million to settle a US regulator’s allegations that it hired relatives of overseas government officials to win business between 2006-2014; most of the “hiring” was carried out in the Asia Pacific-region and Russia. Not surprisingly, the bank, which created false books and records that concealed corrupt hiring practices, agreed to settle the case without admitting or denying wrongdoing.

Although 2018 salaries for UK chief executives dropped 13%, they are still a staggering 117 times more than the average full-time worker – US$ 4.27 million v US$ 36k. The CIPD report also noted that last year, only six of the FTSE 100 companies were run by a woman, compared to seven the year before. There are some who think that the fat cat bosses are more concerned with maintaining share prices on the high side, so as to boost their annual bonuses, whilst not focussing on the long-term health of their company. However, it is unlikely that the status quo will change and that the average worker will have to continue to graft for more than a century to earn the same pay a CEO gets in just a year.

Thailand is reeling from the current global trade tensions that have been impacting on the country’s exports so that recent estimates of 2.2% growth are now likely to contract by 1.2%. Trade is not being helped by the fact that the baht has gained more this year, against the greenback, than any other regional currency. Growth is also being impacted by   smaller gains from tourism (annualised growth slowed to 1.1%), and domestic consumption, with high household debt restraining consumer spending. However, there are hopes that a US$ 10 billion government stimulus package may have a positive effect.

President Hassan Rouhani could be planning to slash four zeroes from the Iranian currency which would devalue the rial and rename it as toman. If this were to go ahead, it would return the currency name ‘toman’ that has not been used in the country since 1930. Some consider the move as the president’s way of helping the nation deal with increasing prices, particularly when the rial has fallen from 116,500 to 32,000, to the greenback, in the four years since the previous US president, Obama Barrack, signed the nuclear deal. With unemployment at over 12% (and under 25 – 25%) and the inflation at 40.4% monthly, the economy is certainly tottering.

In July, Japan’s merchandise trade deficit came in at US$ 2.34 billion, as both annualised exports and imports sagged – by 1.6% and 1.2% respectively.

Eurozone’s June current account surplus fell 39.4% to US$ 20.4 billion compared to the previous month – its lowest level since January 2017. Over the past twelve months, the current account surplus dipped 18.7% to US$ 353 billion, equating to 2.7% of the total bloc’s GDP, (compared to 3.4% in June 2018). Another worrying indicator saw eurozone’s headline inflation slow 0.3%, month on month, to 1.0% – its lowest since November 2016; this time last year, inflation was more than double at 2.2%.

Despite all the negative news surrounding Brexit, it is interesting to note that the UK tech sector continues to attract foreign investment, with a record US$ 6.6 billion posted in the first seven months of 2019; this is more than any other European country and is more than the amount invested per capita in the US tech sector. 55% of funds come from US and Asian firms which is 27.6% higher than this time last year. Two of the biggest deals involved US$ 800 million by Japan’s Softbank in UK’s Greensill and also US$ 400 million by the same company, in liaison with Singapore’s Clermont Group, in digital-only bank, OakNorth Bank.

As his first four-year tenure as president comes to an end next year, Donald Trump wants to keep the US economy in a strong position. There is no doubt that his massive 2017 tax cuts boosted the economy and accelerated both the local and global stock markets. Now he is considering a new, temporary payroll tax cut and a possible reduction in capital gains tax. The president is also keen to see a further rate cut but even though that is out of his hands, it will be probably occur in the coming weeks. More light may be shed at the weekend, when Fed chief, Jerome Powell (who the president has compared his handling of the economy to a “golfer who can’t putt”), speaks at a convention of global bankers in Jackson Hole Wyoming.

Ahead of this meeting taking place tomorrow, the IMF has indicated that it does not believe that the recent global spate of monetary policy easing – often resulting in weakening currencies – will be enough to improve most countries’ trade balances. Recently, Donald Trump has been tweeting that both China and the EU have been engaging in currency manipulation to benefit their exporters.

To show how crazy the financial world has become is to see that 30% of the global, tradeable bond universe is being sold with a guaranteed loss attached to the coupon, equating to a massive US$ 16.7 trillion deficit. So much for Economics 101 that has always taught US government bonds to be the safest investment! Now it seems that more and more central banks are looking at zero (or negative) rates which defies economic protocol that has always paid investors for putting their money into banks. It might be only a matter of time before banks start picking up tabs for customers’ mortgages. The World’s Gone Crazy!

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