Hey Ho Silver Lining!                                                                                    16 January 2020

The latest study from Core indicates that 32k units were brought to the market last year and that a further 8.9% 49k units this year will bring Dubai’s total residential stock to 600k. The real estate firm estimates that the market oversupply in the emirate looks likely to continue, with the three top locations for the new supply being MBR City, Dubailand and Dubai South. But to the optimistic observer, a pick-up in global trade, the current regional geo-political uncertainty stabilising and the Expo halo may see the demand needle moving in the opposite direction. Interestingly, there was a 58% decline in the number of new launches in 2019, year on year; that will surely see a much-needed slowdown in the supply chain.

As property prices continue to scrape the bottom, allied with historically low interest rates and more accessible bank financing, the knock-on effect is that the number of mortgage enquiries jumped 59% over the year. Mortgage Finder also found that there was an 11% inquiry increase from those earning between US$ 2.7k – US$ 3.3k (AED 10k – AED 12k) and that the average property price, that those in this bracket consider, is US$ 217k (AED 795k).

Bayut.com estimate that Dubai Marina, with apartment prices per sq ft 11.7% lower on the year at US$ 361, was the most popular location in Dubai for new buyers, whilst Palm Jumeirah attracted the highest number of buyers and investors for villas, where prices fell 16.6% to US$ 380 per sq ft.  Last year, sales in Dubai Marina were 59.5% higher at US$ 2.2 billion. With prices continuing to head south, allied with mortgage rates decreasing, Dubai is still a buyer’s market as the number and value of property transactions increased in 2019. There were marginal 5% declines recorded in Business Bay, whilst JVC posted average 13.8% declines to US$ 163 per sq ft. The more popular locations in the secondary market were found in Palm Jumeirah, Dubai Marina, Downtown Dubai and JVC, whilst the primary segment saw Dubai South, MBR City and Dubai Hills come out in front.

HH Sheikh Mohammed bin Rashid Al Maktoum has enacted the DIFC Leasing Law No 1 of 2020, stipulating requirements that provide a protection framework for owners and tenants in the financial hub. It is hoped that the new law “will enhance the DIFC’s property market and reflect the centre’s commitment to maintaining a legal and regulatory framework, aligned with international best practice”. Among the new regulations are a maximum 10% limit on security deposits of the annual rent of a residential lease and that the landlord has to give a tenant written notice of a proposed rent increase at least ninety days prior to the expiry of a lease. There are also other guidelines, including the introduction of a tenancy deposit scheme, and residential leases to be administered by the registrar, requiring the production of condition reports, and specifying provisions relating to the termination of leases.

According to HH Sheikh Mohammed bin Rashid Al Maktoum, “We, at Dubai Council, will double our work in the next period — 2020 will be the year of major changes and real transformations in our journey towards the next 10 years”.  He was speaking as Dubai set up a new “economic district” on SZR for the next generation of businesses – much similar to the way the DIFC free zone has become one of the major global financial centres over the past two decades from ground zero. The government is planning a US$ 545 billion (two trillion dirhams) trading hub over the next five years; in H1, trading volumes totalled US$ 184 million. The District will have a “future economies” research centre and be a base for business incubators and financing institutions for New Economy enterprises. It will be no surprise to see the Dubai Ruler’s tweet – “We are the new capital of the New Economy” – soon become reality. He has also issued a directive to further enhance Dubai’s presence on the world stage by setting up fifty global offices for promoting Dubai’s commercial, tourist and investment position.

The UAE has bailed out the US by deciding to finance the world’s biggest economy’s Expo pavilion, after Congress failed to approve federal funds to construct the US$ 60 million pavilion; the US bars public financing for such international gatherings. Secretary of State, Mike Pompeo, was a keen supporter for US participation at the world fair fearing that the country’s absence would demonstrate weakness at an event where an increasingly powerful China would showcase its technological prowess in a key region – whereas US would have lost out “to showcase American freedom, ideals, enterprise, culture and global leadership.” The US building will demonstrate 3-D printing for prosthetics and organs, a journey to Mars and an idealised future city with minimal traffic.

A report from investment advisory, Julius Baer, has ranked Dubai as 17^th out of 28 countries as the most expensive for luxury goods and services – and sixth from twelve countries in the EMEA region. The three most expensive global cities were Hong Kong, Shanghai and Tokyo – with Mumbai coming in the lowest at 28^th; London, Paris and Milan were akso among the most expensive for luxury goods and services. Dubai is the most expensive place in the Europe, Middle East and Africa (EMEA) region to buy a lady’s handbag or a piano, whereas it is the cheapest for a wedding banquet – 89% lower than it would cost in New York. When it comes to prime residential property, (only 9% of that in Monaco, the most expensive in the survey), business class flights (55% of Sydney prices) and cars (64% cheaper than Singapore), Dubai scored well. If nothing else, the survey debunks the myth that the emirate is such an expensive place to live in or visit, compared to other global cities.

Business activity in Dubai’s December non-oil private sector economy saw a month on month 1.2 dip to 52.3 – a figure that still indicates that business activity remains strong; the market is forecasting that the level of investments will improve on the back of Expo 2020, with higher sales expected. There appears to be a lot of hope being put on the world fair, starting in October, to boost both investment and spending in the emirate. However, new order growth did come in at its slowest rate in nearly four years. The month also saw a weaker increase in new orders, driven by the fact that the slow economy negatively impacted on clients’ spending power. On the plus side, employment increased for the fourth month in succession.

This week, Sheikh Ahmed bin Saeed Al Maktoum, chairman of Dubai Silicon Oasis Authority, laid the foundation stone for W Motors – a US$ 100 million investment for the seven-year old high-performance luxury sports cars facility. The 120k sq ft project will be built in three stages, with phase one comprising a workshop, assembly area, and a “concept and prototype” manufacturing zone. Production of all W Motors vehicles will now take place in DSO, including its limited series Fenyr SuperSport.

DMCC reported that the number of newly registered companies last year was 5.4% higher, year on year, bringing the total to over 17k. Over 100k people live and work in JLT, which has quickly become a major global hub for trade and an interconnected business district.

Dubai Economy estimates that over 184k new jobs were created last year, as it saw new business licences jump 90.8% to 38.4k, year on year.; over 2019, the number of licences cancelled was down 1.7% to 4.9k. These figures seem to indicate that there has been a marked uptick in the emirate’s economic competitiveness and that the recent Foreign Direct Investment Law has enhanced overseas business interest.

For the sixth time, a tribunal of the London Court of International Arbitration has found in favour of DP World, in their case against the Government of Djibouti over the Doraleh Container Terminal. On this occasion, it was found that Djibouti had acted illegally when it forcibly removed DP World from management of the terminal in February 2018 and was ordered to restore the rights and benefits, under the 2006 Concession Agreement to DP World, by the end of March or pay damages. It has been estimated that the Dubai port operator has incurred losses of over US$ 1 billion. The Doraleh Container Terminal, a third owned by DP World, is the largest employer and biggest source of revenue in the country and has operated at a profit every year since it opened.

According to the General Civil Aviation Authority, the UAE has thus far invested US$ 272 billion in airport infrastructure development projects, spanning development projects across the country, and a fleet of 884 commercial aircraft. As the industry grows, (with latest numbers indicating 4.4.% growth in global passenger numbers this year to 4.72 billion), there is the need to keep up with the latest developments, especially in the ME which is one of the world’s fastest expanding markets.

An interesting statistic from Dubicars.com sees used car values rising for the first time in the UAE – up by between 4% – 10% – while sales are accelerating. The study, analysing three million searches, also shows dealers selling vehicles 7.5 days faster than in 2018 and privately-owned cars are selling in 17.8 days, from 24.4 days. It also indicated that a new car will experience a drop in value of between 15% – 30%, within the first year,but that used cars are not depreciating as fast they used to. There is no doubt that sales of new cars over the past four years have slumped by up to 40% and that the average age of a car on Dubai roads is eight years. This shows that consumers are holding on to their cars longer, rather than trading in for a new model, which in turn has increased the demand for used cars and have started to push their prices upwards.

The founder and former CEO of embattled Drake & Scull International, Khaldoun Al Tabari, has been arrested in Amman, after failing to turn up before Abu Dhabi’s Public Funds Prosecution over criminal charges filed by DSI for fund mismanagement/misappropriation. This arrest will send shock waves for those corporate chiefs and senior personnel who have carried out financial misdemeanours in the past. It is believed that DSI itself hasfiled “15 criminal complaints against the previous management, members of the previous board of directors and some of their family members.” It has been reported that accumulated losses at DSI top US$ 1.1 billion and that their scale and nature were kept secret by previous management. The UAE authorities had issued a directive to freeze the bank accounts of Al Tabari and his wife, as well as to seize properties registered under their names.

There are reports that Amanat Holdings is considering a potential acquisition of a strategic stake in the ME operations of VPS Healthcare. If this were to go ahead, it would be in line with the ethos of the Dubai-based healthcare and education investment company to buy into established platforms to grow and scale profitably. VPS was founded in 2007, by Dr Shamsheer Vayalil, and is now an integrated private healthcare service provider in the UAE, with a growing foothold in Oman. Interestingly, Dr Vayalil is also Vice Chairman and Managing Director at Amanat Holdings but will not be involved in any discussions regarding this particular deal.

The bourse opened on Sunday 12 January and, 21 points down the previous week, was up 79 points (2.9%) to 2828 by 16 January 2020. Emaar Properties, having lost US$ 0.03 the previous three weeks, was US$ 0.06 higher at US$ 1.17, whilst Arabtec, US$ 0.06 lower the previous three weeks, was flat at US$ 0.33. Thursday 16 January saw the market trading only 175 million shares, worth US$ 84 million, (compared to 164 million shares, at a value of US$ 61 million, on 09 January).

By Thursday, 16 January, Brent, losing US$ 3.15 (2.6%) the previous week, shed US$ 0.54 (0.8%) to close at US$ 64.60. Gold, up US$ 80 (5.4%) the previous four weeks, rose a further US$ 4, closing on Thursday 16 January at US$ 1,556.

Following the death of Sultan Qaboos, his cousin Haitham bin Tariq has been sworn in as the new sultan of Oman. “After a meeting of the family which decided to appoint the one who was chosen by the sultan”, the 65-year old was sworn in on Saturday, a day after Sultan Qaboos, the longest-reigning leader of the modern Arab world, passed away. Having died unmarried and leaving no children or heir apparent, and following royal protocol, the royal family had three days to determine the successor and if they had failed to agree, the person chosen by Qaboos in a letter addressed to the family would be the successor. Many had theorised that another cousin, Asad bin Tariq, was the favourite to take over.

Abu Dhabi Crown Prince, Mohamed Bin Zayed Al Nahyan, has been appointed to chair a panel to oversee the construction of a new Indonesian capital, with SoftBank chief executive and founder, Masayoshi Son, and former UK Prime Minister, the ubiquitous Tony Blair. The appointment was made by the Indonesian President, Joko Widodo, on a state visit to Abu Dhabi.  The panel will advise on building the new US$ 34 billion capital, to be located on the island of Borneo, to ease the burden on the sinking and congested current capital Jakarta, with a thirty million population. SoftBank has already shown interest in part financing the establishment of a smart and green city and investment deals, worth an impressive US$ 22.8 billion, were signed between companies from the UAE and Indonesia.

2019 plane sales at Boeing slumped to just 380 jets – its lowest level in eleven years, as its main protagonist, Airbus managed to deliver more than twice that number at 863. Bearing in mind that orders – which deduct cancellations in their calculations – reported that new orders in 2019 were a miserly 54, compared to its European rival’s 768 planes. The main driver behind the dismal news was the grounding of its 737 Max in March, following two fatal crashes; ten months later, there is still no concrete news on when the model will fly again. Boeing has an order backlog of 5.4k, across its range of jets, as at the end of 2019. It is estimated that the US plane maker is bleeding US$ 1 billion a month and posted a US$ 3 billion negative cash flow in Q3. It will also face astronomic penalties and compensation payments in the months ahead.

2020 started no differently for the UK High Street which has been in the doldrums now for several years. Beales, founded in 1881 and one of the country’s oldest department stores, has warned that it could collapse into administration. If that were to happen, twenty-two stores and 1k jobs will be at risk if a buyer cannot be found; the company is in talks with two potential buyers – a rival retailer and a venture capital investor – and is also in negotiations with landlords regarding rent reductions. This week has also witnessed Debenhams closing nineteen shops and Mothercare’s 79 UK stores ceasing trading.

There was no surprise to discover that 2019 was the High Street’s worst on record, with retail sales falling for the first time in twenty-five years, declining 0.9% over the last two months of the year. Two major players have issued warnings. Superdry said that its profits could be wiped out after sales fell sharply over Christmas. Meanwhile, John Lewis has warned that its staff bonus may be in doubt, as Christmas sales, at its department stores, were 2% lower for stores open at least a year.

Having opened its first store in 1972 in Perth, the Australian-founded, Hong Kong-owned denim label Jeanswest is in a crisis that could see the end of the iconic brand and the closure of its 146 outlets in its home country.(Its overseas operations, in countries such as China, Hong Kong, Vietnam, Russia and Indonesia, are not affected by the administration). Two other retailers are closing stores – Bardot with 58, over the next two months, and Harris Scarfe closing 21. Meanwhile Mosaic, with brands such as Noni B, Rivers, Millers and Katies clothing chains, noted that its sales took a hit in H2, especially in the 32% of its stores in regional areas, where the company said “consumer confidence has been particularly fragile”, being “directly impacted” by the bushfires. Its share value sank 20%, in two days’ trading, on Tuesday and Wednesday. Any upward movement in economic growth has been hampered by weak household consumption, with latest ANZ data seeing Christmas period sales 5% down year on year.

YTD, the Australian stock market has proved to be the best performing global bourse, as the ASX jumped 5.3% to exceed the 7,000 barrier (to 7,048) for the first time, driven by record interest rate lows and a recent improvement in US-Sino trade relations. The Central Bank has had to slash rates last year in a bid to stimulate a sluggish Australian economy. With investors earning next to nothing on cash, but being able to borrow cheaper money, they are turning to the share market which has meant that the ASX has a very expensive 18.2x price-to-earnings ratio. One consequence of this has seen the total Australian superannuation portfolio reach US$ 2.1 billion (AUD 3 billion) – up 13.8% on the year – with the average super fund returning 15.2%, the best since 2013. It has to be noted that because the local financial markets are relatively small, an increasing amount of “Australian money” is to be found invested in international markets.

Aided by enhanced household spending, the German economy managed to grow by just 0.6% in 2019 – its weakest performance in six years – as Q4 is expected to see growth of between 0.1% – 0.2%. There were weaker returns in business investment for machinery/equipment and an 0.5% decline in industrial production, excluding construction, whilst exports grew at a lower rate (0.9%) than in recent years. Despite marginally better returns in Q4, having nearly moved into recession the previous two periods, there is no doubt that Europe’s mainstay economy is struggling to generate growth.

A monthly 0.2% decline in December’s inflation rate to just 1.3%, (its lowest rate in over three years), makes am increase later in the month much more likely, as it is well below the Bank of England’s 2.0% target. There were price falls noted for women’s clothes and hotel room costs, although energy prices climbed 4.9% in December. However, with the UK economy barely crawling forward, there is little immediate chance of rates returning to the 2.0% mark in the near future.

A third member of the nine-man Bank of England’s Monetary Policy Committee has come out indicating a willingness to cut interest rates further depending on how the economy has performed since the December election and whether economic weakness persists. Currently, the rate is at 0.75% and there is now the possibility of this being reduced to 0.50% when the next MPC meeting takes place on 30 January.

Positive news from Washington should help ease the tensions between the US and China, as regulators reversed their earlier decision to brand the world’s second biggest economy a currency manipulator, following an agreement that the yuan would not be devalued so as to make Chinese exports cheaper on the global stage. The facts that the Chinese currency had appreciated since August, at the height of the trade war, and the IMF confirming that the yuan was valued fairly, may have helped the decision. The Treasury Secretary, Steven Mnuchin, confirmed that “China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability.”

Subsequently, the two superpowers signed a pact that was well received by both parties, with Donald Trump saying it would be “transformative” for the US economy and Chinese leaders calling it a “win-win” deal, that would help foster better bi-lateral relations. Part of phase 1 of the deal sees China agreeing to boost US imports by US$ 200 billion above 2017 levels and strengthen intellectual property rules, with the US agreeing to halve some of the new tariffs; the four way split will see manufacturing, energy, services and agriculture benefitting by US$ 78 billion, US$ 52 billion, US$ 38 billion and US$ 32 billion respectively. The two-year tit-for-tat trade war has seen tariffs of more than US$ 450 billion being levied on traded goods, with a negative impact on global economic growth and trade.

A Cavendish Maxwell report concludes that the falling prices in a sluggish property market represent a “silver lining”, with more buyer interest being generated by lower prices. The consultancy estimated that 2019 apartment declines averaged 15%, although some areas, including Discovery Gardens and JVT, posted bigger falls of 23%. Price declines for villas and townhouses averaged 18%, although bigger ones were noted in the Meadows (24.3%), JVT (22.8%) and Victory Heights (22.3%). In a simple equation, with incomes nudging higher (or even remaining flat) as property prices sink (and supply increases), the customer base is expanding. Add to the mix Expo, and more potential buyers, along with lower mortgage rates, then it is only a matter of time before equilibrium returns to the Dubai property sector. Hey Ho Silver Lining!