Just Hold On                                                                                                  06 February 2020

Luxhabitat has released figures indicating details of the top selling properties in Dubai last year, starting with a 22.9k sq ft villa in Mohammed Bin Rashid City, selling for a cool US$ 25 million, as MBR also claims fifth position with US$ 16 million property changing hands. The second costliest realty transaction was a US$ 20 million deal for a penthouse on The One at the Palm. Emirates Hills and Downtown came in third and fourth, with both transactions around the US$ 17 million mark. Even “old” Dubai got in the top ten with an Umm Suqeim villa going for US$ 14 million.

Property Finder estimates that last year 41.1% of Dubai property sales, equating to 15.5k of the total  37.8k, were for less than Dhs 1 million (US$ 272k), reflecting a market shift from the traditional more expensive units; most units under this price would normally be either studio or 1 B/R apartment – a segment popular with first-time buyers and investors. The property portal notes that rental yields can be as high as 10% in this segment. The top such five locations were Jumeirah Village Circle (1.5k sales), International City (1.4k), Meydan (1.1k), Business Bay (1.0k) and Jumeirah Lakes Towers (0.9k); the average sales price in JVC was estimated at US$ 160k.

Property broker Allsopp & Allsopp reports that last year it moved 4k families into homes and saw revenue 40% higher, with Downtown the most popular area for sales, whilst Dubai Marina took the top place for rentals. It pointed out that the emirate saw property handovers 52.4% up, year on year, to 32k, with a similar percentage increase expected in 2020 to over 49k. With prices still heading south, there are potentially more first-time buyers in the market, as well as existing buyers/tenants upgrading their living arrangements.

According to Valustrat, Dubai property price declines slowed again in January, by an average 0.9%, continuing an eight-month trend; over the past twelve months, prices have fallen 10.3%. All locations posted monthly declines, with Discovery Gardens and Dubai Production City registering a 1.3% drop, whilst in The Meadows, Al Furjan and The Lakes, the decline was lower at 0.7%. In August, the weighted average residential price fell below the psychological level of Dhs 1k (US$ 272) per sq ft and since then it has declined to US$ 259 – this being similar to the figure some eight years ago, as the market then came off the bottom to start its three-year bull run. As seen last year, the number of off-plan sales transactions continued to decline – 20% month on month – while ready home volumes moved in the opposite direction, up by 37% since December.

Ellington Properties has announced that all 283 1–2 B/R apartments in its two developments have been sold. Wilton Terraces I and II, located by the Dubai Water Canal, comprise two 12-storey towers interconnected by a single podium and surrounded by 2.4 million sq ft of greenery in Mohammed Bin Rashid City. Its newest project, Wilton Park Residences, is also located in MBR City.

Sobha is forecasting that its revenue this year will top US$ 680 million, (25% higher than in 2019), mainly from its eight million sq ft Sobha Hartland community, initially launched in 2014. Located in MBR, the developer sold 1.5k units in 2019, with Creek Vistas being its most popular cluster.

JLL is confident that the realty sector will get a boost from recent major government and pro-growth initiatives that could see higher demand. They include the likes of boosting residential demand from overseas investors, and developers introducing various initiatives, such as paying off the 4% registration fees and offering attractive monthly payment schemes. Furthermore, the September 2019 formation of a new Real Estate Planning Committee will also help. Developers will inevitably witness the launching of fewer new projects, whilst focusing on the sale of existing inventories. Acknowledging that both apartment and villa rents and sale prices continued their downward trend last year, by 8% and 5%, and 8% and 10% respectively, it expects some improvement in 2020. The consultancy reckoned that 35k units were handed over in 2019 and that a massive 83k could be the figure this year – it does however expect this to be far lower, come December; the number of Dubai residential units is expected to top 638k by then. (The official count as at the end of 2018 was that the emirate had 486k apartments and 111k villas, making a total of 597 residential units, along with a population of 3.192 million; by 01 February 2020, this had increased by 5.5% to 3.366 million).

This year, the hospitality sector is set to improve, as demand recovers with several initiatives including large-scale projects, new visa rules, the increasing popularity of cruise tourism and Expo 2020. Last year, 7.2k rooms were added to Dubai’s portfolio which is expected to top 151k by the end of the year; major additions will be Artesia in Damac Hills and Royal Atlantis in Palm Jumeirah.

The office market will remain, for want of a better word, dull, with another year of tenants holding all the cards. Q4 saw Dubai Grade A rents in the CBD fall by 13% to US$ 370 per sq mt, with average vacancy rates increasing by 3% to 14%.

Both the 279-key Mövenpick Grand Al Bustan, which opened in 1997, along with Swissôtel and Swissôtel Living Al Murooj, (with 251 rooms and 285 extended-stay apartments), will now be managed by Accor, the world’s largest hotel operator. Both properties are owned by Dubai Developments, the privately held development company established by Dubai’s Deputy Ruler, Sheikh Hamdan Bin Rashid Al Maktoum. Both properties will undergo major three-year refurbishment and upgrades. These additions will see Accor with 17k keys across sixty hotels in the country – and 280 properties, with 61k keys, in the Middle East & Africa.

Currently operating thirty cloud kitchens, (for restaurant delivery), and hoping to add a further 100 globally this year, Dubai-based Kitopi has raised US$ 60 million in a Series B round. The extra money will also be used “in software technology to help build much more efficient operations.” The company operates cloud kitchens in five locations – UAE, Saudi Arabia, Kuwait, the UK and the US. Founded in January 2018, it previously raised US$ 2 million in a pre-seed round and US$ 27 million in series A funding, bringing its total to date to US$ 89 million. The smart kitchen network partners with more than a hundred restaurants to cook and deliver to customers on their behalf.

The Dubai Autism Rocks Support Centre, which provided support for children on the autism spectrum and their families, has closed. Sanjay Shah, who established the UK-based charity in 2014, is now accused of defrauding Danish taxpayers out of nearly US$ 1.2 billion. Although he has not been charged by the Danish courts, the claims are subject to a civil case in London brought against Shah by Denmark’s tax authority. Consequently, it is believed that his assets in the UK and the UAE have been frozen by the High Court of Justice in the UK. Agencies in various other jurisdictions, including Belgium, Germany, Norway, UK and US, are reportedly investigating the UK multi-millionaire businessman, who was living on The Palm. (A recent blog – ‘Leave the Light On’ – indicated that in Australia, some 400 suspects were being investigated for their roles in “cum-ex trades”, where two parties simultaneously claim ownership of the same shares and therefore claim tax rebates they are not entitled to). The multi-millionaire denies all allegations in this complex tax fraud often associated with specialised stock dividend trades, also known as “dividend stripping”. In 2015, his Dubai-based private investment house Solo Capital Partners was wound up, amid reports the company was one of several being investigated by Danish authorities. Earlier this week, Denmark’s serious economic and international crime police department seized a US$ 19 million mansion near Hyde Park.

This year, ENOC plans to open twenty-two new service stations throughout the UAE, including nine in Dubai, as well as expanding its retail network, Zoom, by 16.2% to 158 stores.

Despite the number of passengers using Dubai International in 2019, declining 3.1%, year on year, to 86.4 million, the airport was able to retain its position, for the sixth consecutive year, as the world’s busiest hub for international passengers. The main factors behind the unexpected decline have been laid at the doors of the global grounding of Boeing’s 737 Max, the bankruptcy of India’s Jet Airways and the 45-day closure of the airport’s southern runway for repairs. The number of aircraft movements fell 8.6% to 373k flights, while the average number of passengers per flight increased 5.8% to 239. Over the year, cargo volumes headed south, 4.8% lower at 2.514k tonnes – and by 7.0% to 659k tonnes in Q4. India, Saudi Arabia and the UK remained the top three destination countries, with 11.9 million, 6.3 million and 6.2 million passengers, with the top three cities being London (3.6 million), Mumbai (2.3 million) and Riyadh (2.2 million).

The latest IHS Markit UAE Purchasing Managers’ Index crossed the “50 Line”, the threshold that indicates either expansion or contraction, and pushed the UAE economy into negative territory. A reading of 49.7 finally ended ten years of growth in the country, mainly driven by continuing employment losses (at one of the fastest monthly rates on record) and a decline in new orders. Another disturbing factor was that selling prices were reduced for the sixteenth straight month. Like most global economies, the UAE is suffering from regional geopolitical problems, sluggish world trade and weak domestic demand. There is hope that the upcoming six-month Dubai Expo, starting in October, could be a catalyst to kick start the local economy.

In another mega project involving Abu Dhabi and Dubai entities, following the 2018 US$ 8.2 billion agreement between Emaar and Aldar Properties, it has been announced that Adnoc and Dubai Supply Authority will jointly develop a gas reservoir, called “Jebel Ali Project”. Spread over 5k sq km between the two emirates, around Saih Al Sidirah and Jebel Ali, it could generate 80 trillion cu ft of gas, once the development reaches full speed; to date, Adnoc has already dug ten wells. This new find moves the country one place to sixth in the world, in terms of oil (at 105 billion barrels) and gas reserves, with 273 trillion cu ft of conventional gas and 160 trillion cu ft of standard non-conventional gas resources. Dusup will be responsible for “providing energy for Dubai by sourcing and distributing natural gas and LNG” to fuel the generation of power and production of water.

According to the RTA, construction progress on the three bridges, of six lanes in each direction, leading to the entrance of Deira Islands, has reached 75%; completion is timed for June. The project, comprising four man-made islands and spanning 17 million sq ft, will eventually be home to 250k residents and 80k employees; construction will comprise hundreds of hotels, furnished flats, mixed-use buildings and marinas.

At Wednesday’s meeting of the Dubai Executive Council, the waiving of a new package of government fees for Dubai government services was approved; this will undoubtedly help to reduce the costs of doing business in the emirate. Services, that have been included in this decision, include those provided by the health, economic, marine, social, leisure and infrastructure sectors. The decision also aims to promote economic growth in the emirate, attract more foreign investment and position Dubai as a hub for business, by reducing administrative costs and fees.

In what was described as a “challenging year”, precipitated by the US-Sino trade war and regional geopolitical conflicts, DP World reported almost flat 2019 global container volumes at 71.2 million 20’ equivalent units; Q4 volumes were 0.4% lower at 17.7 million TEUs. On the local front, Jebel Ali Port posted an annual 5.6% decline and a Q4 6.2% drop in volumes to 14.1 million and 3.4 million TEUs respectively. Much of the local decline was put down “due to the loss of low-margin throughput, where we remained focused on high-margin cargo and maintaining profitability.” On the positive side, increases were seen in both the US and Australian sectors – up 0.2% and 4.5% – but being pulled lower by a 2.1% decline in Europe, Middle East, and Africa.

S&P Global Ratings is confident that UAE banks will remain resilient in a tough operating environment, helped by Abu Dhabi’s US$ 13.6 billion Ghadan 21 stimulus package and Dubai’s pre-Expo infrastructure spending. Although lending growth, in the nine months to September, slowed to 4.5% on an annualised basis, the ratings agency is looking at 5% – 6% growth in 2020 and a “mid-single-digit net lending expansion”. Its average long-term rating for local banks moved one notch higher to ‘A’ in 2019 and has a stable outlook on UAE bank ratings – a sign that they expect no significant changes this year.

Six-year old Dubal Holding and Electricite de France have agreed to explore collaboration in developing sustainable energy solutions and green business opportunities in the GCC and Brazil, focussing in areas of thermal power plants, technical support services and district cooling. The wholly owned subsidiary of the Investment Corporation of Dubai owns 50% of EGA, which produces up to 2.6 million tonnes of primary aluminium every year and is also the country’s largest industrial company outside the oil and gas sector.

Troubled Drake & Scull International completed two separate engineering and construction projects in Kuwait – the Sheikh Saad Al Abdullah Al Salem Al Sabah Indoor Sports Complex (worth US$ 19 million) and a US$ 55 million project at Sabah Al Salem University City. In its home base, it has struggled of late, and by the end of 2018, it was carrying a US$ 1.2 billion deficit. It is pursuing legal action against its former chief executive, Khaldoun Tabari and has also filed fresh criminal complaints against him, his daughter and other former executive managers with the Abu Dhabi Public Funds Prosecutor’s office.

Following Khaldoun Tabari’s claims that Drake & Scull “owes him several million US dollars – a claim confirmed by a recent Dubai Court judgement,” Tabarak Investment Co hit back saying that the former CEO’s claims are “totally false”. DSI’s major shareholder, which invested US$ 136 million in the firm two years ago responded by saying that “the truth is that the Dubai Court ruled in favour of Tabarak, sentencing Al Tabari to pay Tabarak a total of AED 105,624,199 (US$ 29 million) plus 9% daily penalties”, adding that “previous charges field by Al Tabari against Tabarak were dismissed by the DIFC court.”

The recent acquisition by Dubai Islamic to acquire Noor Bank has received final approval from the relevant regulatory authorities. This tie-up resulted in a bank, with total assets exceeding US$ 75 billion, being one of the largest global Islamic financial institutions. After weeks of discussion between both parties, it is reported that 4.9% of the combined total of 10.3k employees (9k of which worked for DIB and the balance with Noor) could be retrenched, as part of a cost cutting exercise.

Mashreq reported a 1.9% year on year hike in 2019 net profit to US$ 572 million, helped by a significant increase in investment income from US$ 7 million to US$ 29 million and non-interest income to operating income ratio remaining high at 38.2%; Q4 posted a 1.5% rise in profit to US$ 85 million. During the year, there was growth across the board, including customer deposits 9.3% higher at US$ 24.8 billion, total assets up 11.8% to US$ 43.4 billion and loans/advances moving up 10.0% to US$ 20.8 billion. With non-performing loans (NPLs) to gross loans ratio standing at 3.6% at year end, the bank’s total provisions for loans and advances reached US$ 1.1 billion, equating to 116.8% coverage for NPLs.

The Commercial Bank of Dubai posted a 20.5% hike in 2019 net profit to US$ 381 million on an 11.3% rise in operating income to US$ 826 million, driven by broad based business improvements; over the year, net interest income was 2.8% higher, fees/commission by 21.3% and other operating income by 31.2%. Total assets moved 18.8% higher to US$ 24.0 billion, net loans/advances by 18.1% to US$ 16.4 billion and customer deposits by 19.1% to US$ 17.2 billion.

The bourse opened on Sunday 02 February and, 48 points (1.7%) lower the previous week, lost more ground, down 20 points (0.7%), to 2770 by 06 February 2020. Emaar Properties, having shed US$ 0.07 the previous fortnight, was US$ 0.01 lower at US$ 1.09, whilst Arabtec, US$ 0.11 lower over the previous six weeks, was down a further US$ 0.04 to US$ 0.24 (dipping below the Dhs 1.00 mark for the first time to close on 87 fils). Thursday 06 February saw the market, short on liquidity and investors, trading only 108 million shares, worth US$ 59 million, (compared to 308 million shares, at a value of US$ 119 million, on 30 January).

By Thursday, 06 February, Brent, losing US$ 9.93 (14.5%) the previous four weeks, continued to sink faster than ever losing a further US$ 2.97 (5.1%) to close at US$ 55. 43. It is inevitable, at least in the short-term, that Opec and other producers have to introduce significant production cuts to prop up these ailing prices. Gold, up US$ 99 (6.3%) the previous seven weeks, finally headed in the other direction, shedding US$ 6 (0.4%), closing on Thursday 06 February at US$ 1,565. Over the month of January, Brent collapsed slumping US$ 10.05 (15.1%) from its 01 January opening of US$ 66.67 to US$ 56.62 by 31 January, with gold steaming in the other direction US$ 72 (4.7%) higher from its month opening of US$ 1,517 to US$ 1,589.

Driven by falling energy prices, BP posted an almost 30% slump in annual net profit after tax at US$ 9.4 billion – not a happy ending for long-time chief executive Bob Dudley, who has been replaced by Bernard Looney. Recently, the UK entity, like its major competitors, Royal Dutch Shell and Total, began to focus on cleaner energies, as carbon emissions and climate control came more into the public arena and became subject to more government scrutiny. Indeed, BP predicts that renewable sources could account for 15% of global energy consumption within the net twenty years. It also sees a big future for electric cars, having bought out the UK’s largest electric vehicle charging firm Chargemaster in 2018.

Last week, Airbus agreed to pay US$ 4 billion in fines to settle accusations of corruption following a lengthy investigation by US, UK and French agencies. This week, AirAsia has come out to deny that it was paid US$ 50 million to buy 180 of the European planes. Nevertheless, shares in Asia’s biggest budget airline slumped 11% on Monday after Malaysian regulators confirmed that they had started investigations into the deal; Malaysia’s Anti-Corruption Commission is working alongside Britain’s Serious Fraud Office (SFO) probing the claims. Tony Fernandes has stepped aside, for at least two months, as the chief executive of AirAsia while authorities probe bribery claims. Sri Lanka and Ghana have also started enquiries into corruption claims surrounding Airbus – the former involving its national airline and the other the purchase of three military aircraft.

As a result of stellar Q4 results, Jeff Bezos saw his fortune jump 11.4% to US$ 129.5 billion when his value of Amazon shares surged 12%, with the company now worth over US$ 1 trillion; Bezos owns about 12% of Amazon’s outstanding stock. Of the other tech billionaires, both Bill Gates and Elon Musk benefitted from better than expected Q4 results., with Elon Musk seeing US$ 2.3 billion added to his personal wealth, only for Tesla shares to lose 17% in one day following concerns that car production at his Shanghai factory  would be hit by the coronavirus. The only exception was Mark Zuckerberg who “lost” US$ 4 billion after Facebook shares slid on its slowest-ever quarterly sales growth.

Mike Lynch, the founder of UK software firm Autonomy, who sold the company to Hewlett Packard for US$ 8.4 billion in 2011, has given himself up for arrest as part of a US extradition, over charges of conspiracy and fraud. Lynch has been accused by HP and US prosecutors, alleging that he and other former Autonomy executives artificially inflated the software company’s revenues and earnings between 2009 and 2011, resulting in HP overpaying for the firm; Dr Lynch “vigorously rejects all the allegations”. Having been released on bail of US$ 13 million, he has been facing civil charges, instigated by HP, at the High Court in London, as well as separately by the US Department of Justice who are pursuing criminal charges against him. It has to be noted that the UK’s Serious Fraud Office investigated the deal in 2013 but dropped the case because of “insufficient evidence”.

Following a damaging spy scandal, Credit Suisse’s Tidjane Thiam has resigned to be replaced by Thomas Gottstein, with the bank also announcing that its chainman Urs Rohner, has its full backing. This is significant because there was a major conflict between him and the outgoing CEO over the spying incident with the shareholders siding with Thiam, whilst urging Rohner to back Thiam or step down himself. The troubles started in September when it emerged that the bank spied on its star banker Iqbal Khan after he announced he was joining UBS. An internal probe by Credit Suisse concluded Tidjane Thiam did not know about the spying, and that Chief Operating Officer Pierre-Olivier Bouee, who was subsequently dismissed, was responsible.

Reports from London show that Paras Shah has paid a high price for stealing his sandwiches from the Citigroup staff canteen in London. The senior trader, who was pulling in a reported US$ 1.3 million a year working with the investment bank, has been suspended and has been removed from his post as head of high-yield bond trading for Europe, the Middle East and Africa. Unfortunately for him, his departure came weeks before the bank was due to pay annual bonuses to senior employees.

IATA has noted that global air freight demand declined  by 3.3%, year on year, last year, for the first time since 2012, mainly attributable to the trade war between the US and China; it was also the weakest performance in the cargo market since the 2009 GFC, when air freight markets contracted by 9.7%. December saw a 2.8% increase in capacity, whilst cargo volumes were down 2.7%. Now that it seems that there is a significant easing of US-Chinese trade tensions, the sector is being impacted by the coronavirus and the forlorn hope is that this will be a short-term problem.

Despite stringent restrictions on cash withdrawals in place, it is estimated that US$ 1 billion has been transferred out of cash-strapped Lebanon. There are indicators that the capital flight could have been politically motivated and, with the protest-hit country facing a liquidity crisis, an official enquiry has been launched. However, many believe that a combination of bankers, senior civil servants and suspect politicians have been able to bypass the restrictions and transfer money overseas. Indeed, a Carnegie think tank in November concluded that nearly US$ 800 million left Lebanon between October 15 and November 7, when most citizens could not access their funds because banks were closed due to protests

A report in the National Institute Economic Review reckons that the UK is going through its worst slowdown in productivity growth in over 250 years, at the time of the Industrial Revolution, and 20% lower than pre- 2008 GFC. It blames three factors for the slump – the end of the information and communications technology boom, the financial crisis and Brexit. It conceded that technology at the beginning of the century pushed productivity higher but, over the past decade, it has contributed less than a quarter of that. The hope that a new era utilising AI will have a marked effect on the UK’s future productivity.

As part of its trade truce with the US, China indicated that it would halve tariffs on US$ 75 billion-worth of US imports, in a move that was also meant to calm the global markets, worried by the deadly coronavirus; US is expected to reciprocate by halving tariffs on US$ 120 billion worth of Chinese goods. The same time that Donald Trump hailed relations with China as the “best” ever, it seems that talks towards a wider agreement have gained increasing traction. Last month, another agreement saw Beijing agreeing to buying an additional US$ 200 billion in US goods.

China pumped in an unprecedented US$ 16.3 billion into its economy on Monday in a bid to counteract the negative impact of the coronavirus outbreak, with the twin aims of ensuring enough liquidity in the banking system and helping provide a stable currency market. It also unexpectedly lowered short-term interest rates as part of its attempts to relieve pressure on the economy. At the moment, the analysts expect only a “short-term” impact on the slowing economy but that growth figures would be lowered if it were to last longer. Many factories have already suspended production and offices have closed but the main economic damage has been seen in the country’s travel and tourism sectors. On its first day open after the Chinese New Year, the market was spooked as the Shanghai Composite index closed almost 8% down – its biggest daily drop in more than four years, with the only sector moving higher being healthcare shares.

Another country that will suffer economically is Australia – and this comes in the midst of the bushfires which have already cost lives and wreaked huge economic damage. UBS has warned that the group travel ban, introduced by the Chinese government, could cost the country up to US$ 1 billion in services exports to China. The most directly affected sectors so far appear to have been airlines, airports, casinos, (that could lose up to 50% of its VIP volume), educational facilities, luxury retailers and travel agencies. If this epidemic has the same impact that SARS had on Asia-Pacific travel, Qantas and Virgin could lose US$ 350 million and US$ 45 million in revenue, with Sydney airport shedding 5% of its operating cash flow. Listed education-based companies like IDP Education, along with universities, could be badly hit by any substantial reduction in Chinese students. If large sections of Chinese industry continue to be closed, then there would be an obvious hit for the miners, especially iron ore and coal, as prices would decline, and demand weaken; however, gold miners may receive a boost if investors chase gold as a safe haven investment. The medical profession will also benefit with more visits from worried patients and more demand for medical supplies such as vaccines, protective clothing and related equipment such as ventilators. During these troubled times, the message is that things will get better and now is the time to Just Hold On!.