Hope Springs Eternal                                                12 September 2019

Despite all the gloom around the realty sector, there have been recent glimpses that the worse may be over. Property Finder reported that over the summer quarter, (June – August), residential sales at 8.8k were the highest in four years and 33.5% up on the 6.6k figure in 2018. The secondary market recorded a 20.4% rise to 8.8k, with total sales at US$ 3.9 billion, up 14.9% year on year. However, the off-plan market still leads the way, with the quarter’s 5.0k, 43.5% higher than the corresponding figure last year; sales came in at US$ 2.0 billion – up 49.6%.

For the first eight months of the year, the fact that only 179 residential units, worth over US$ 1.4 million (Dhs five million), compared to 12.4k under that value, sold in off-plan sales, points to a significant switch in consumer behaviour; in the secondary market, the numbers were 527 and 8.8k. In 2018, off plan sales showed 241 units being sold over US$ 1.4 million and 17.2k below that amount, with the secondary market seeing sales of 1k and 14.6k respectively. These figures indicate a marked shift in a move from what was considered luxury to more affordable units.

MAG Property Development is planning to invest US$ 2.2 billion into the local realty sector, with three major projects – Mag City in Meydan, Al Furjan Villas and MPL Tower in JLT. To further encourage potential buyers into the market, the developer is to introduce a US$ 33 per day payment option to own a property – and this without any additional terms or fees, including registration, service and any other administrative costs.  MAG believes that a move to more affordable housing is the direction the market is taking and that developers should take note or lose out.

September sees Damac launch a month of offers, covering projects in Business Bay, Damac Hills and Akoya. Among the offers are a 50% discount off select homes in Celestia in Dubai South and 10% discounts on luxury villas, along with a three-year flexible payment plan. The payment plan is also open to buyers in Damac Hills (as well as a 15% discounts) and 20% on golf course-facing apartments in Kiara. Buyers for its recently opened Paramount Tower Hotel & Residences will receive guaranteed three-year rental revenue of up to 30%, with the same offer available for Radisson Dubai Damac Hills. Damac is going back in time by also offering a new Mercedes Benz to customers buying homes at three of the four Damac Towers by Paramount, Royal Golf Boutique Villas and those buying 2-3 B/R apartments at Golf Town in Damac Hills.

Businessman, Abdul Razeq Abdul Ahad has signed an agreement with Ellington Properties to build a new residential tower in a central location in the emirate. The US$ 41 million deal will go some way towards the builder’s target to build 1k residential units every year; to date, its developments have included Belgravia, Belgravia Heights, Belgravia Square, Wilton Terraces and Wilton Park Residences in MBR City.

Monday saw the tenth anniversary of Dubai Metro over which time it has carried 1.5 billion people, riding on the world’s longest driverless metro project. In its first year of operations, it had 39 million users, but this has more than quintupled to 204 million recorded last year. It is hard to believe that HH Sheikh Mohmmed bin Rashid Al Maktoum faced some opposition to his plan from some members of the Dubai Executive Council, worried of its non-acceptance by the population.

Emirates reported that its UK market has been growing at a healthy 6% per annum and accounts for 56% of its total European profit, along with 26% of capacity. Data firm OAG estimates that the Dubai-London route is valued at US$ 800 million, with the Heathrow-Dubai leg, (utilising six A380s a day), being the fourth busiest in the world, carrying 3.4 million passengers. The airline uses eight UK destinations, with its president, Tim Clark, believing that there would not be a “collapse in UK demand” if and when the country leaves the EU.

The Minister of Health has ordered that the price of some 410 drugs should be reduced, by between 2% – 77%, as from 15 September; 183 of these are produced locally. HE Abdul Rahman bin Mohammed Al Owais is implementing the government’s directive that medicine should be provided at competitive prices and in line with the lowest prices to be found in the Gulf.

It seems that some UK employees in various sectors would be better off financially by moving to this country. A study by 1^st Move International estimates that pilots, doctors and lawyers would earn, on average, more by 126% to US$ 168k, 86% at US$ 108k and 70% to US$ 138k respectively. The UAE was also ranked the tenth best paying country, with an average overall salary of US$ 55k.

Shuaa Capital is to sell its local Shuaa Securities brokerage and market-making businesses to IHC RSC Ltd, an Abu Dhabi investing holding company. This is part of the strategy of the new entity, following Shuaa’s recent merger with Abu Dhabi Financial Group, that sees the divestment of non-core business units.

On Tuesday, Arabtec shares finished 11.3% higher at US$ 0.482 (but still at almost record lows), as the builder confirmed it was in merger talks with Trojan Holding. In the first two quarters of 2019, the troubled company posted year on year profit falls of 50.0% and 62.0% respectively.

The bourse opened on Sunday 08 September and, having gained 122 points (4.4%) the previous week, dipped 3 points lower (0.1%) to 2888 by 12 September 2019. Emaar Properties, having lost US$ 0.07 the previous four weeks, was flat at US$ 1.36, with Arabtec US$.0.03 higher to US$ 0.47. Thursday 12 September witnessed even lower trading conditions again of 98 million shares, worth US$ 51 million, (compared to 143 million shares, at a value of US$ 95 million on 05 September).

By Thursday, 12 September Brent, having shed US$ 0.76 (1.1%) the previous week, nudged US$ 0.06 (0.1%) higher at US$ 60.38. Gold, having gained US$ 19 the previous fortnight, ended on Thursday 12 September US$ 30 (2.0%) lower at US$ 1,507. 

Following problems with so-called “final load” tests, Boeing has suspended testing on its new long-haul 777X aircraft, of which Emirates is the biggest launch customer. There are reports that a door of the plane blew out during the test – a very rare occurrence at this stage of testing.  The new model was supposed to have its first flight this summer – now it seems it will be a toss-up between the 777X and 737 which will fly first. At the same time, the US manufacturer is in the process of completing changes required by regulators to lift a flight ban on the 737 MAX.

Google has agreed to pay French tax authorities US$ 1.0 billion to settle a tax dispute. The US company expects that this will put to bed the many fiscal differences that it had with France for numerous years. However, there seems to be little common ground on how to control the taxation of digital giants, even though this was discussed at the recent G7 meeting.

Earlier in the year, Goldman Sachs was lauding the fact that WeWork could be valued at US$ 65 billion, despite the fact that the office-sharing company was losing billions of dollars and had never posted a profit in its nine-year history. In H1, WeWork lost a further US$ 609 million bringing its total losses over the past three years to US$ 3.0 billion. Now there are questions whether the company will ever go public and if it did, pundits are valuing it as low as US$ 20 billion. There is every chance that it may go to its number one investor, SoftBank, for more financing.

A late flurry in the number of complainants, claiming for the mis-selling of Payment Protection Insurance (PPI), has left Lloyds and Barclays facing billions of dollars in new costs. The former will provide between US$ 1.5 billion–US$ 2.2 billion, whilst Barclays will put aside slightly less. Popular with “financial advisers” in the 1980s, and wholly unsuitable for its supposed purpose, PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs.

It seems highly likely that the London Stock Exchange will reject a surprise US$ 39.4 billion takeover offer from Hong Kong Exchanges and Clearing which would have combined “the largest and most significant financial centres in Asia and Europe”. However, having called the bid “unsolicited, preliminary and highly conditional”, the board said it would “consider” the proposal and “make a further announcement in due course”.

The IMF seem to be advising Saudi Arabia to double its VAT rate to 10%, as one way to reduce its far too high budget deficit (at US$ 320 billion) which is expected to widen by a further 0.6% this year to 6.5% of GDP on the back of OPEC production cuts. In its first year of operation, 2018, VAT generated returns of US$ 12.5 billion, equating to 1.6% of the country’s GDP. Although some progress has been made to reduce the deficit, the government still needs to look at other reforms, such as raising energy prices and fees levied on expatriates.

Australia – with a mere 25 million population – holds the world’s third-largest pool of pension assets, worth a massive $1.9 trillion, almost double that of the world’s tenth largest bourse – the Sydney-based national stock market ASX. This nearly 2:1 ratio is the highest among major developed economies where the ratios for UK, Canada and US are around 1.4, 1.2 and 1.0 respectively.

Fund managers are increasingly looking for overseas returns on some of that total which could be in the region of US$ 250 billion. Because of this cash imbalance, many of the Australian funds have been forced to look offshore to find suitable infrastructure, property, private equity and listed companies that could grow to US$ 1.0 trillion. Reports indicate that 41% of the biggest funds’ assets are currently invested overseas, with 75% of those funds expected to grow these offshore investments over the next two years.

The ECB has announced the return of quantitative easing (initially purchasing US$ 18 billion a month), and further cutting the deposit facility rate by 0.1% to minus 0.5%; the main interest rate remained unchanged at zero. Despite these measures, aimed at pushing the inflation rate to its 2.0% target, the economy remains sluggish at best and the hope is that by making more money available, it will encourage financial institutions to lend more to businesses and individuals.

With all the negative news emanating from the UK media, it is perhaps a surprise to some that the economy is faring comparatively well, when compared to some of its European neighbours. Wages continue to head north with July quarter growth readings of 4.0%, on an annualised basis, and at the same time the unemployment rate dipping to 3.8%; the estimated employment rate remained at a record 76.1% (32.8 million), its highest level in forty-five years. These figures point to a high probability that the economy should avoid a technical recession in Q3. On top of that, sterling started its climb back on Monday standing at 1.2357 to the greenback after falling below the 1.20 threshold the previous week.

Mainly as a result of the bi-lateral trade war with the US, China posted disappointing August exports – down 1.0%, compared to the same month in 2018. Exports to its nemesis fell 16.0%, year on year, whilst the flip side saw US imports slump 22.4%. The country is almost certain to introduce new measures to avoid the obvious danger of a further economic deterioration. This has already included the central bank cutting banks’ reserve requirements for a seventh time in twenty months to free up more funds for lending; there is the possibility of a rate cut which would be the first in four years. The on-off talks are back on with both countries agreeing to renew trade talks next month.

Good news and bad news on the trade tariff war. This week, China has decided to exempt sixteen US imports from their tariff quota. The bad news is that there are still 5k products still subject to levies of between 5% and 25%. In July, the US had exempted 110 Chinese-made products from their tariff list and some observers consider the Chinese move a very small gesture of goodwill ahead of talks in Washington next month. Currently the tariff table stands at US imposing US$ 360 billion worth of “charges”, with China retaliating with US$ 110 billion. By the end of the week, a presidential tweet saw Donald Trump delaying the planned tariff hike on US$ 250 billions of Chinese goods as a “gesture of goodwill”. Hope Speaks Eternal.