A Change Is Gonna Come                                                                   07 November 2019

There could be a welcome boost for the local real estate sector with reports that the Central Bank is considering new rules that will loosen the cap on bank lending; currently, it is 20% of customer deposits that can be lent to the property industry. Any amount above the 20% threshold will incur a capital charge but any loosening is bound to have a positive impact. If it were to go through, banks will have to be cautious, bearing in mind that latest Q3 figures show that UAE banks’ non-performing loans stood at 6.4%, compared to 5.7% a year earlier.

In a bid to accelerate construction at its four-phased residential mega project, Riviera in MBR City, Azizi Developments has added a total of 6k workers to its payroll, as its own Year of Construction, (dedicated to the swift construction of its ongoing projects), rolls to an end. This massive project encompasses 16k residences spread across 71 mid-rise buildings. The developer estimates that phases 1, 2 and 3 are 54%, 36% and 22% completed.

According to Knight Frank, average office rents have declined 8.2% over the past twelve months, with citywide office rents down 9.2% to US$ 30 per sq ft per year. The main driver continues to be lower demand in line with reduced business confidence, as the local economy reports 2019 growth of 1.9%, compared to 3.1% a year earlier.

A US$ 102 million infrastructure project, that involved construction work on 1.4 km of tunnels and 7 km of roads, leading to the Jewel of the Creek development, has been completed. The ground and basement access points of the Jewel of the Creek project have been linked with Baniyas Street to the north, and Al Ittihad Street to the east. An 80 mt footbridge over Baniyas Street, along with other work including lighting, will be completed by the end of Q1 2020. The mega 126k sq mt development encompasses 756 serviced apartments (in four towers), three hotels with 1.2k rooms, twenty restaurants, a man-made lake, and a waterfront promenade and marina for 65 berths; it will also have parking for 6k vehicles.

One tyre manufacturer is introducing a new concept to Dubai by introducing its Pirelli Tyre Hotel, located close to Dubai Autodrome. The temperature-controlled facility, allowing drivers to store their premium tyres to optimise performance, is fitted with custom-designed racks made to enhance the longevity of such tyres. The emirate becomes its fourth location in the world, following Munich, Monte Carlo and Los Angeles.

The Department of Tourism and Commerce Marketing (Dubai Tourism) has tied up with Tencent Games to develop The Map, featuring Dubai within the successful online game application. Lego Cube is free to download and allows players to experience many of Dubai’s landmarks; the aim of the exercise is to attract more Chinese tourists and is the first time that TenCent has partnered with an oversees entity.

With the start of the cruise season, Dubai is expecting to welcome up to one million visitors on over 200 ship calls – last season saw a 51% increase in numbers to 850k, arriving on 152 liners. The first ship arrived last month at Dubai’s Mina Rashid Cruise Terminal. – TUI Cruises’ Mein Schiff 5, carrying 6k passengers.

Monopoly has finally arrived in Dubai and was launched at a ceremony at the Burj Al Arab on Monday. The iconic hotel is one of the places on the board that includes iconic Dubai sights such as Burj Khalifa, The Dubai Mall, Atlantis The Palm, Dubai Frame, Dubai Opera and Global Village. Surprisingly, Nord Anglia International School was featured, whilst the likes of The Dubai Mall and Palm Jumeirah did not pass ‘Go’. The two top positions were taken by the Burj Al Arab and Bluewaters.

Kibsons has expanded its 130k sq ft head office and cold storage warehouse in Dubai Fruit and Vegetable Market and has plans to quadruple its daily home deliveries to 10k.; its work force will increase by a further 200. The family-owned 38-year old online fruit, vegetable, dairy and meat distributor will also triple its distribution capacity, both distribution capacity of fresh produce, which currently stands at more than 250k kg, and also its meat processing capabilities. The company plans to expand into other parts of the region before the end of 2021.

There have been calls from some operators in Dubai’s hospitality sector for a review of taxation on adult beverages, served in bars and restaurants, claiming that the current tax on adult beverages is having a negative impact on a struggling industry and perhaps hurting tourism numbers.

An NBK report on the UAE sees its growth prospects remain “relatively solid”, backed up by 3.5% 2019 hike increase in the oil sector this year, leading to a modest average 2.2% expansion over the three years to 2022. It estimates that this year’s growth in the non-oil sector will be 1.0%, almost doubling next year to 1.8%, boosted by “the impact of structural reforms, the fiscal stimulus package and the Expo 2020 begin to be realised”. Going forward, the economy is expected to weaken to 1.5%, as the impact of the Abu Dhabi stimulus and Expo 2020 eases. With property rentals still heading south, it is expected that there will be 1.9% deflation this year, but this is a short-term feature with inflation returning to “normal” levels of around 2.4% by 2022.

There was even more bullish news from the IMF espousing that the UAE’s non-oil growth would exceed 1% this year and rise to 3% in 2020 – at the fastest rate since 2016. The UAE GDP will reach 2.5% in 2020., helped by Expo 2020 and UAE government policies. The world body noted that the economy has been helped by the government taking “a number of important steps”, including allowing 100% foreign ownership in certain sectors, reducing fees/penalties, a new insolvency framework and the promotion of greater financial inclusion.

According to a Ministry of Finance official, the UAE has no plans to introduce income tax and the country will not see any VAT hikes for at least another three years. This is welcome news for many and comes on the back of increasing rumours that VAT would double to 10% and that income tax was just around the corner. There are some analysts who think that any future tax will be forced on the government by outside bodies such as the World Bank or IMF. Initial estimates made when VAT was introduced to the UAE in January 2017 were for revenues of US$ 3.3 billion; the first year of operations saw the actual figure more than double to US$ 7.4 billion.

Despite all the doom and gloom hanging around the economy, the Ministry of Human Resources and Emiratisation indicated that Dubai added 90.3k net new jobs in the year to June – up 21.9% on the previous year.

The GITEX Technology Week Economic Impact Assessment highlighted revenue across direct, (spending in ancillary sectors such as accommodation, F&B, retail, entertainment, travel), indirect and induced economic levers, (including higher employment and consequent disposal income growth); this equated to US$ 250 million being  added to the emirate’s GDP.

Landmark Group has launched e-commerce apps for iPhone and Android and an e-commerce website for its Centrepoint brand in Kuwait, an e-commerce market expected to grow to US$ 1.1 billion by the end of 2020. The Dubai-based retail and hospitality conglomerate expects that with a population of 2.6 million internet users, of which over 92% already shop online, will be a lucrative market. Kuwait customers will have instant access to over 25k product lines from its range, including Babyshop, Splash, Lifestyle and Shoemart, and be able to shop for over 200 homegrown and international brands. Landmark has had over seven years in the e-commerce sector and has witnessed exponential compound annual growth of 140%.

It seems inevitable that 2019 will see new record highs for the Dubai Gold and Commodities Exchange, as after nine months of trading, it has posted 20.3 million contracts (valued at US$ 373 billion); its twelve-month total in 2018 was 22.3 million. Last month, its daily trading was at 72.9k and its monthly total of 1.68 million deals was 11.5% higher than a year earlier. Gold Futures showed a YTD 70% jump in trades as both INR Quanto Futures (116% higher on the year) and Brent Crude Oil Futures, up 38%, were notable performers.

DP World’s expansion plans seem never-ending, with the latest being a 34-year concession (with French container operator Terminal Link – PortSynergy Group) to run two berths in Le Havre; the world’s largest port operator already has operations in berth 5 in the French port. Once completed, this addition will add one million TEUs (20’ Equivalent Units) to its portfolio and will cover an area of 42 hectare, with a 700 mt quay.

As the much-troubled Drake & Scull continues to restructure its business, it is also still investigating the actions of its previous management; Shuaa Capital is assisting to “support our restructuring, to transform DSI and bring it back to profitability”. The current chairman, Shafiq Abdelhamid, commented “it is our duty to protect the rights of our shareholders who trusted us and invested in this company.” The contracting firm has already lodged fifteen complaints against former company board members and executive management, with further criminal complaints having been added. The company now claims that between 2009-2017, annual losses were hidden from shareholders. In 2015, DSI posted a US$ 256 million loss, rising to US$ 378 million two years later, by which time retained losses had risen to US$ 858 million. Its shares were suspended on the DFM in November 2018.

The region’s biggest aviation lessor, state-owned Dubai Aerospace Enterprise, posted a 10.3% decline in nine-month profit to US$ 260.5 million, driven by marked increases in depreciation, increasing by US$ 12 million, and finance costs grew. 12.0% to US$ 281 million. In September, the company received a mandate from an unnamed investor to acquire and manage aircraft worth about US$ 1.4 billion. As at 30 September, the lessor had a fleet of 358 aircraft (84% owned, with the balance managed planes) with 111 customers in 56 countries; the book value of its owned planes is US$ 11.9 billion. Emirates is the company’s largest customer, contributing 14.1% of lease revenue during the nine-month period – its other four top lessees accounted for a further 14.5% of the revenue stream.

Meanwhile, Emirates saw its H1 profits (to 30 September) 382% higher to US$ 235 million, despite a 3.0% decline in revenue at US$ 12.9 billion; the main drivers were a US$ 545 million fall in oil prices, offset by a US$ 320 million exchange loss and a 45-day closure of the southern runway earlier in the year. However, there are still a few canaries in the mine, including an uncertain and slowing global economic environment, socio-political problems in certain locations of the airline’s market and increasing competition, biting into margins Consequently, the airline has decreased capacity and rationalised routes, whilst expecting “flattened” growth going forward. During H1, there was a 2% fall in the number of passengers carried to 29.6 million, as capacity was reduced by 5% due to the runway closure; however, passenger yields and passenger seat factor both headed north – up 1% and by 2.3% to 81.1% respectively.

Dnata – its airport and travel services arm – saw revenue dip 2% to US$ 14.5 billion, with an 8.0% profit decline at US$ 327 million, partly due to its exposure to the UK’s bankrupt tour operator, Thomas Cook; to date, there has been a US$ 23 million impairment cost. Dnata posted a 64% decline in profits to US$ 85 million.

In line with global trends, freight volumes at the world’s largest international cargo airline fell 8.0% to 1.2 million tonnes and yields by 3.0%. (In September, IATA reported that global air freight had fallen 4.5% – the 11th consecutive month of decline in freight volumes and the longest period since the 2008 GFC). With ongoing trade tensions, and the US/Chinese tariff war, conditions are not expected to improve in the short-term.

This week the Emirates chairman, Sheikh Ahmed bin Saeed Al Maktoum, has been requested to temporarily oversee Dubai Holding and Meraas, replacing Abdulla Al Habbai, who had been in charge of both government entitles since March 2017; during that time, he launched several projects, most notably Downtown Jumeirah and Madinat Jumeirah Living. His Highness will assume further responsibility for some of Dubai’s most important entities with Dubai Holding, owning the likes of the Jumeriah Group, Tecom, Dubai Properties, Dubai Asset Management and Arab Media Group; it is estimated it has 20k employees and an asset value of US$ 35.4 billion. Meraas has recently agreed a US$ 1.4 billion retail JV with Canada’s Brookfield Asset Management and is responsible for some of the emirate’s major developments including Bluewaters Island, City Walk, La Mer and The Beach.

Furthermore, Sheikh Ahmed is also Second Deputy Chairman of The Executive Council of Dubai, president of Dubai Civil Aviation Authority, chairman of Dubai Airports and chairman of Dubai World.

Although its property income rose 4.0%, to US$ 54 million, for the nine months to 30 September, Equitativa’s posted an 81.0% decline in profit to US$ 6 million. The fund manager, that runs the Nasdaq Dubai-listed Emirates Reit, is now looking at reducing costs and focusing on operational improvements. Results were not helped by a US$ 1 million revaluation loss, “influenced by market conditions”, compared to a US$ 20 million gain posted in the same period last year.  The company’s portfolio stands at US$ 1 billion and, although its net assets per share is at US$ 1.67, its latest market value of US$ 0.66 shows trading at a substantial discount.

Amanat halved its losses to US$ 463k in Q3, whilst operating revenue more than quintupled to over US$ 4 million, with finance income 24% higher at just under US$ 3 million. Over the nine-month period, profit was 38% up at US$ 9 million on revenue totalling US$ 24 million, with operating income almost five times higher at US$ 6 million. Two of its assets, Middlesex University Dubai and North London Collegiate Schools, performed well with revenue streams of US$ 5 million and US$ 6 million respectively.

Emaar Malls reported a 6.0% hike in profits for the nine months to 30 September to US$ 472 million on the back of a 5.6% revenue increase to US$ 929 million. On a quarterly basis, both profit and revenue headed north by 12.1% to US$ 164 million and 5.4% to US$ 323 million respectively. Its wholly owned on-line subsidiary also posted positive results, with nine-month revenue 14.0% up at US$ 188 million, with Q3 figures 19.7% higher at US$ 73 million. Its flagship, Dubai Mall, welcomed 61 million visitors out of the 99 million that shopped at all their malls over the nine months, whilst Q3 occupancy levels remained at a credible 92%.

The bourse opened on Sunday 03 November and, having lost 39 points (1.4%) the previous week, shed 46 points (1.7%) to 2699 by 07 November 2019. Emaar Properties, having lost US$ 0.06 the previous week shed a further US$ 0.02 to close at US$ 1.14, whilst Arabtec, down US$ 0.04 the previous week, was US$ 0.01 lower to US$ 0.49. Thursday 07 November saw dismal trading of 125 million shares, worth US$ 65 million, (compared to 157 million shares, at a value of US$ 43 million, on 31 October).

By Thursday, 07 November, Brent, having gained US$ 3.72 (6.4%) the previous four weeks, continued in positive territory, up US$ 0.70 (1.0%) to US$ 62.29. Gold, having gained US$ 20 (0.5%) over the previous fortnight, lost that and more, down US$ 45 (3.7%), closing on Thursday 07 November at US$ 1,466. 

Ahead of a partial IPO, Saudi Aramco’s nine-month profit dipped 18.0% to US$ 68.2 billion, as revenue slipped 6.9% to US$ 217.0 billion on the back of lower energy prices – with average Brent crude declining by 11.0% over the same period. Despite the fall, these figures are still way ahead of the total 2018 profit of the most profitable global publicly traded company.

Meanwhile Sunday saw the start of the company’s IPO – with potential tax cuts and dividends to lure investors – that will probably value the energy giant at a lot less than the touted US$ 2 trillion only three months ago. Sixteen banks have offered valuation guidance, ranging from US$ 1.1 trillion to US$ 2.5 trillion – it looks as if the final decision may result from a toss of a coin.

An industry report intimated that there was a massive 22.9% Q3 jump in mobile consumer spend on the Apple App Store and the Google Play Store, to US$ 21.9 billion. Of the world’s two largest distribution channels, App stores earned more than 60% of that total (US$ 14.2 billion) with Google Play, supported by Android devices, lagging some US$ 6.5 billion behind in earnings; however, Google Play does have a larger number of apps in its library (2.47 million) compared to the 1.8 million held by its rival. Interestingly, whilst App Store posted a 5.3% growth in first-time app installations, with its main rival almost tripling their number in Q3.  The total number of apps being downloaded is expected to grow by 26.8% to 260 billion over the next three years.

It seems highly likely that Jingye Group will buy British Steel out of insolvency, after initial frontrunner, Turkey’s Ataer pulled out late in October. The utility, currently being run by the UK government since May, employs 5k in its Scunthorpe plant, with a further 20k in the supply chain. The chairman of the Chinese steelmaker, Li Ganpo, visited British steel sites last week and held discussions with Scunthorpe MP Nic Dakin and Andrew Percy, representative for the Brigg and Goole constituency.

After 58 years of trading, and unable to find a buyer, Mothercare has announced plans to put its UK business into administration, with the loss of a possible 2.5k jobs.  Its overseas business remains intact, with countries such as India, Indonesia and Russia not subject to administration.  In line with many of its peers, the retailer has been struggling from increased competition, including the big UK supermarkets, fast fashion brands and the internet.

Under Armour is being investigated by US federal authorities for accounting irregularities, including shifting sales from quarter to quarter to appear healthier; the company, which has been struggling with staling growth, has been under investigation since 2017. When the news broke this week, along with Q3 results showing a 1.0% decline in sales to US$ 1.4 billion, its shares slumped 16%.

Yet again, both the S&P 500 and Dow Jones indices hit record highs after opening up about 0.3% each on Thursday, with the Nasdaq up 0.5%, following reports that both China and the US would rollback tariffs in phases. Whilst discussions are taking place, both parties have agreed to cancel further tariffs in different phases. However, it seems that a November meeting between President Donald Trump and Chinese President Xi Jinping could be delayed a month.

Judgement Day may have finally arrived for the Big 4 Australian banks – ANZ, CBA, NAB and Westapc – with all of them posting lower annual profits. The last one to post results was NAB whose profits have declined 13.6% to US$ 3.3 billion. A KPMG report shows that that these four banks saw their combined cash profits, for the year ending 30 June 20 19, 7.8%  lower compared to a year earlier. What is sure is the banks have to change from their previous past poor, oft illegal and unethical behaviour and that they will have to introduce new processes which will take years to actually fully implement: this will impede further revenue (and profit) growth. In addition, it is inevitable that all will be in line for heavy penalties for their previous “misdeeds”. and higher costs as new processes are introduced. They also face the double whammy of shrinking margins in a low-interest-rate environment.

The Australian retail sector is going through tough times, with one analyst stating that the September figures were “the weakest retail spending in 28 years” and this despite the fact that 60% of tax refunds had been processed and in the hands of consumers. YTD retail volumes are 0.2% lower, as there have been three 0.1% quarterly declines over the past twelve months. The last time volumes fell on an annual basis was in the early 1990s – the last time Australia experienced a recession. There is no doubt that consumers are cutting back on spending, despite successive interest rate and tax cuts but low wage growth is another problem. However, what is most worrying for the macro economy is that consumer spending accounts for 67% of the country’s economic activity and this will not help the lucky country from slipping into recession.

October 2019 could be the month that the Dubai property market finally moved off its four-year bottom. It is reported that last month witnessed 4.8k sales of land, residential and commercial properties – its highest monthly number since January 2008. It is estimated that by July 2019, villa/apartment prices had declined by 12% over the previous two years and were 4% down on December 2018 prices. The sales jump has been driven by several factors, apart from the fact that all cycles have to change and go through ups and downs – and now may be the time to head north. With the help of banks being forced to remove the 3% early settlement fee, a change in maximum age requirements and lower prices, among other factors, the market dynamics are finally starting to shift. A Change Is Gonna Come.