Don’t Give Up On Us Now!

Don’t Give Up On Us Now!                                                                            12 March 2020

Property Finder estimates that 179 projects are nearing completion and that 48.5k units could come on to the market by the end of September; this is just slightly less than the total amount handed over in the three years between 2016-2018. If this proves correct, then it will continue to be a buyer’s market, with prices and rentals still hovering around their bottom. The number quoted appears to be on the high side but only time will tell. Of the major players, Emaar will add 4k more apartments before December, Wasl Asset Management’s 2.5k at Ras Al Khor, Millennium Place, Mirdif Hills, with 1.6kapartments, the three Al Habtoor City Residential Towers – 1.4k, Damac a further 1.1k, via its three Carson Towers in Damac Hills and Wasl Assets 0.7k in Arabian Gate at Dubai Silicon Oasis.

JLL estimates that 35k residential units were handed over last year and expects this figure to top 80k in 2020; the 2019 figure was the highest annual number of villas and apartments delivered in Dubai’s history. This year, the consultancy expects the realisation rate to be half that total at 40k. The Higher Committee of Real Estate, set up last September, will inevitably monitor all new developments to ensure there will be no duplication of projects in the sector that has been the case in the past; this will, in turn, regulate market oversupply. Another feature that could help with the current supply/demand imbalance will be intentional delays in handovers, with phased deliveries. Most of the new supply will be in relatively new areas of Dubai, with the older locations still in demand with buyers.

According to Core, 32k units were handed over last year bringing the number of residential units to 550. The Dubai-based realtor commented that this annual figure was the highest yearly number handed over since 2009 and that this  will increase by a further 49k by the end of 2020 to bring the total to almost 600k; MBR City, Dubailand and Dubai South will see most of these additions. That being the case, the number of units in the two-year period will have increased by 81k, equivalent to an annual rate of 6.9%; over the past twelve months, Dubai’s population grew by 4.5% to 3.38 million. This shows a slowing in the population growth as for the two years to 31 December 2019 the increase had been 12.6% to 3.38 million.

Danube became the first developer this year to introduce a formal off-plan launch (‘Olivz) in Dubai, as most developers are keeping their distance, preferring to focus on selling off properties in their portfolio in a soft market. The 741-apartment, US$ 110 million project, comprising studio, 1-2 B/R, with prices from US$ 79k to US$ 190k, will be ready for handover within two years. The developer noted that “construction costs have not come down – only property values have”. Last year, it launched two projects – the “Elz” and “Wavez” – and delivered two, “Starz” and “Resortz”; to date, it has delivered a total of 2.1k units. Once the latest Olivz project has sold more than 90%, the company will probably release another launch.

It is thought that local banks may be impacted .by the virus, resulting in reduced lending and borrowing and that the deteriorating economic environment will lead to poorer credit quality and limited funding being made available; this in turn may be a drag factor on bank’s liquidity, as there will be increased pressure for banks to provide loans and fund development. Moody’s have forecast that there will be “broad-based shock” to the UAE economy as there will be marked slowdowns in key sectors – including tourism, transportation, trade and real estate – that are integral to the emirate’s progress.

As the coronavirus worsens, Emaar Hospitality has decided to close three of its Dubai hotels – Address Fountain Views, Vida Creek Harbour and Vida Emirates Hills – for five months so that it can `’ temporarily refocus on a selected number of assets”. The hotels will reopen on 01 September but, in the intervening period, the properties’ restaurants, gyms and pools will remain open.

The latest convention coronavirus casualty is the Arabian Travel Market which has been postponed to the end of June as a precautionary measure. The annual B2B, one of the biggest in the region and a massive boost for the Dubai hospitality and retail sectors, brings nearly 40k global travel professionals, government officials and journalists. Both horse racing and football matches will have to be played in empty stadia, with the Emirates Racing Authority announcing on Friday, that meetings will take place, but without spectators; and this will be inevitably the same for the upcoming World Cup meeting on 29 March. The Central Bank requested that banks implement measures to counteract the effects of Covid-19, including rescheduling loans, offering temporary deferrals on monthly loan payments and reducing fees and commissions.

Last year, the Dubai International Financial Centre welcomed 493 new companies bringing the number of entities operating there to 2.4k, which comprise 17 of the top 20 global banks, 8 of the top legal firms and six of the top worldwide asset managers. By the end of 2019, total banking assets booked in the DIFC were 13% higher over the year at US$ 178 billion. The centre’s Wealth and Asset Management (WAM) industry is worth US$ 424 billion, whilst. Gross Written Premiums for the insurance sector nearly touched US$ 2 billion.

In February, the RTA signed an agreement with UK-based BeemCar Ltd to develop a rapid transit system which will operate on suspended rails. The first model of Dubai Sky Pod project was the Unibike, capable of holding five passengers, whilst travelling at a maximum speed of 150 kph; it could carry about 20k people per hour. The latest model will operate on suspended rails and will have a number of loops across the city, covering Downtown locations such as Burj Khalifa, DIFC, Bay Avenue, and Marasi Drive, before crossing SZR to take in Al Wasl district, City Walk, and Coca-Cola Arena.

Not helped by coronavirus, the Dubai non-oil private sector economy slowed again in February to a four-year low, from 50.6 to 50.1, although output growth in the emirate remained unchanged. The disappointing figures were not helped by lower inventories and weaker sales which witnessed the construction sector posting a moderate decline in business conditions with retail/ wholesale faring a little better. Furthermore, there were more declines including new orders falling for the first time in four years and total new businesses declining for the first time in sixteen months. Tougher times are ahead, and it is certain that many of the emirate’s businesses may go out to business if the situation drags on into the summer. The main problem facing not only SMEs will be the lack of liquidity as some firms will have problems paying staff, as their revenue stream dries up.  However, Dubai is in a better place than many other global locations where the economic repercussions could be even more horrendous.

As part of the government’s strategy of enhancing the the ease of doing business and boost trade, DP World has slashed its business-related fees by up to 70%. This will come as a welcome boost to some 7.5k businesses operating in Dubai’s oldest free zone as registration, licensing and related administrative fees are all being reduced. This comes on the back of Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, calling for a reduction in the cost of doing business. A third of Dubai’s GDP emanates from the free zone’s operations, as well as accounting for 23.9% of total foreign direct investment flowing ‎into the emirate.

Although annual revenue was 37.1% higher at US$ 7.7 billion, DP World turned in an 8.3% decline in profits to US$ 1.2 billion in what was described as an “uncertain” trade environment, with the ongoing coronavirus epidemic causing the company concern in the near-term. This week, DP World has signed an agreement to become the global logistics partner and title partner for the Renault F1 team.

WeChat Pay, having signed an agreement with Network International, will soon have a UAE presence and be able to utilise the facilities of the local payments giant and those of its merchant partners. WeChat Pay, a mobile payment service embedded in WeChat, has more than one million registered global users. This will enable the rising number of Chinese visitors to use their local payment platform, as well as giving a welcome boost to the local retail and hospitality sectors.

Troubled Abu Dhabi-based NMC Health indicated that the February staff wages will be paid by next Monday, during a turbulent time in the company’s history which has seen its share value in freefall from December, when short seller US Carson Block warned that he thought that the Abu Dhabi company had overpaid for assets, inflated cash balances and understated debt. It also announced that its debt levels, having almost doubled in H2 last year, currently stands at over US$ 5 billion. as a further US$ 2.7 billion in facilities, that had not been previously disclosed, had been discovered. If that is the case, it would seem that someone has been caught napping (or worse). The UK’s Financial Conduct Authority is currently investigating the largest private healthcare network in the UAE, employing 2k doctors and 20k ancillary staff, which has seen five of 11 board members leave their positions over the past month.

Amanat Holdings has pulled out of negotiations to buy a share in VPS Healthcare Group – no reasons were given. The education and healthcare investment specialist had been interested in the company, established in 2007 by Dr Shamsheer Vayalil, so as to tap into a booming GCC healthcare industry, which is expected to grow to US$ 30.5 billion by the end of 2021; VPS operates more than 20 hospitals and 125 medical centres in the ME and India. Coincidentally, Dr Vayalil is also the vice chairman and managing director at Amanat. At the end of the year, Amanat had US$ 146 million in cash – and had the wherewithal to raise a further US$ 163 million in loans. It also indicated that it would be looking to invest up to US$ 245 million in the GCC and Egypt over the coming years.

Network International posted sterling 2019 results with profits jumping 26.3% to US$ 59 million driven by business growth and no new impairment charges during the year. Revenue was 12.4% higher at US$ 335 million, with the ME and the African regions recording growth levels of 9.2% and 22.2%. The region’s leading payment provider also carried an underlying free cashflow of US$ 103 million and net cashflow from operating activities of US$ 131 million.

Sunday witnessed a stock market carnage  as US$ 211 billion were wiped off local bourses with the Kuwait  Premier Market index being suspended for the second time in six days after hitting a daily decline limit of 10%, with the Saudi Tadawul shedding US$ 180 billion and Dubai down 7.9%; on the day, big hitters, Emaar Properties and Emirates NBD, lost 9.7% and 9.6%. Gulf markets have been hit by the double whammy of the coronavirus and the slump in oil prices, slated to drop even further in the coming days. The GCC bourses did not want to be left behind the global stock markets at the start of the week and they did not disappoint. Gulf markets racked up losses of about US$ 400 billion in the first two days of the trading week – losing US$ 211 billion on Sunday and a further US$ 187 billion the following day. On Monday, the Dubai bourse index ended 8.3% lower, at 2,078, with the likes of market heavyweights, such as Emaar, Emirates NBD and Dubai Islamic Bank, losing over 9% on the day.  

The bourse opened on Sunday 08 March, and 277 points lower (10.1%) the previous fortnight, had another torrid week slumping 129 points (5.0%) to close on 2461 by 12 March 2020. Emaar Properties, having lost US$ 0.16 the previous two weeks was US$ 0.20 lower at US$ 0.70, whilst Arabtec, US$ 0.04 down over the previous fortnight was US$ 0.04 lower at US$ 0.15. Thursday 12 March saw the market trading 428 million shares, worth US$ 280 million, (compared to 169 million shares, at a value of US$ 60 million, on 05 March).  It seems that investors, with an unequal split of ignorance, wishful thinking and business acumen, have jumped in, with the hope that they have bought a bargain. Time will tell but timing is everything.

By Thursday, 12 March, Brent, having gained US$ 0.45 (13.6%) the previous week, tanked US$ 17.79 (34.9%) to close at US$ 33.22. Gold, US$ 104 (6.6%) higher the previous four weeks, gained a further US$ 23 (1.3%) closing on Thursday 05 March at US$ 1,690. (ADNOC also followed Saudi Aramco’s supply increase, by announcing it would bring 4m bpd to the markets in April). Last Friday, Brent prices collapsed – slumping 11.3% to just US$ 45.27 – on the back of the major oil producers failing to agree to a production cut of 1.5 million bpd (equivalent to 3.6% of the global supply); this would have included a 500k bpd by non-OPEC countries but Russia declined to participate.  By the end of Thursday, the market had imploded, not helped by the increasing concern over coronavirus.

From once being the champion of production restrictions, Saudi Arabia has announced that it will ramp up oil production to 12.3 million bpd in a bid to flood the market, as it offers discounts on already low prices which had dropped to just US$ 32 during turbulent Monday trading. The Russians, with an eye on decimating the US shale industry, did not agree with Saudi requesting such a large cut which would inevitably be beneficial for the “new” US producers. Now it is anybody’s guess who blinks first – and it may not be the obvious choice.

If this were to go ahead, there will be winners and losers. The many losers would include the likes of Iran, Venezuela and other smaller oil producing countries with high costs, the US shale producers (and if they were to go under many banks left with bad loans, valued in the billions), major energy companies such as BP and Shell, and  Donald Trump’s re-election chances if the US economy slumped. The winners if prices sank further would include China, the world’s biggest oil importer and, in one way, airlines with lower fuel expenses but not enough passengers to fill their planes.

The oil crisis has just added to the woes already facing global markets that had been in freefall a week earlier, when the coronavirus started gaining traction. The combination of both created “the perfect storm” and led to a critical oil imbalance – demand falling because of factory closures, logistic problems etc and supply increasing, (So much for Economics 101 teaching that when demand falls, supply falls and vice versa).

On Black Monday alone, it was estimated that the world’s 500 richest people saw a total of US$ 238.5 billion disappear in front of their eyes, as the markets went into meltdown.

Having been hauled over the coals by US and UK regulators – who issued fines of US$ 5.0 billion and US$ 500k respectively – Facebook is being taken to court by the Office of the Australian Information Commissioner. The US tech company has been accused of seriously infringing the privacy of more than 300k Australians who used a GSR personality quiz called “This Is Your Digital Life” to obtain the personal information of those who used it. At the time, it was then possible to also access the information of a user’s friends, even if those people had never authorised the app. From the garnered information, Facebook was able to recover data of 87 million people being used for advertising which was utilised by Cambridge Analytica during the UK and US elections. If it were proved that “Facebook failed to take reasonable steps to protect those individuals’ personal information from unauthorised disclosure”, the court can impose a fine of over US$ 1.1 million for every serious or repeated interference with privacy.

India’s financial crime detectives have arrested the chief of the private Yes Bank, with US$ 28 billion in deposits, over allegations of money laundering, just days after the it was taken over by the central bank; it is alleged that the sum involved is US$ 581 million. The banker has denied all charges and the regulators indicate that he is refusing to cooperate with their enquiries.  India’s fifth biggest private bank’s dire position has been put down to `’inability of the bank to raise capital to address potential loan losses and resultant downgrades”. The RBI has asked State Bank of India, the country’s largest state-owned bank, to help with a revival plan.

Wednesday saw two major stories in the UK – the Bank of England cutting rates by 50bp to a historic low of 0.25% and Rishi Sunak’s first Budget. It seems that both the government, using fiscal policy, and the central bank, driving the monetary engine, are working in tandem to stimulate the flagging UK economy. The regulator said it would also be freeing up an additional US$ 250 billion for banks to lend as part of a package of measures to “help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19”.

In reality there were two Budgets – one to deal with the worsening coronavirus conditions, that by Wednesday had been declared a pandemic, with 456 cases being confirmed in the country. The budget included an extra US$ 39 billion in healthcare funding to fight the coronavirus, which has wiped about US$ 10 trillion from equity markets and killed more than 4.2k people around the world. For the first time, the government will fund sick pay for SMEs – with costs running into billions of dollars; it will also grant some cash handouts and suspend certain business rates for one year. As expected, the NHS will receive a US$ 6.5 billion spending boost.

Unusually for a Conservative government, it pumped in US$ 230 billion extra in a mix of capital and current spending that will require increased borrowing of almost US$ 90 billion to fund. Most of the extra spending is on day-to-day departmental expenditure – including on tens of thousands of nurses, policemen, etc. A further US$ 780 billion will be spent by 2025 on a massive infrastructure programme, alongside measures to help businesses and the National Health Service weather the disruption from the disease.

Bitcoin has fared badly losing over 50% over the past two days to close Thursday on US$ 3,915. Meanwhile, the Indian rupee sank to a record low at US$ 74.50 which has seen its benchmark stocks entering bear territory as already this month, overseas buyers have pulled out US$ 2.7 billion this month. Whilst not going down the rate cut route, the ECB has introduced “a temporary envelope of additional net asset purchases of US$ 137 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes.” The central bank also confirmed that it would give businesses more ultra-cheap loans, raise asset purchases and provide banks with capital relief to cope with the downturn.

On the global markets, Thursday proved to be a bloodbath, with the three US bourses and the FTSE witnessing their biggest ever daily falls since 1987; there were 12%+ declines seen on the French and German bourses. Markets were indeed spooked, exacerbated by the US decision to restrict travel from Europe and the ECB not cutting rates which most countries had already done. Belatedly, the Federal Reserve decided to pump in US$ 1.5 trillion to ease strains in the debt markets as well as to expand the kinds of assets it will buy to keep firms lending. The coming weeks and months promise to be a tumultuous time for the world’s economy but when the current crisis ends (and end it will), questions will be asked about what went so drastically wrong. Don’t Give Up On Us Now.

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