Paperback Writer 19 March 2020
Coronavirus came too early for the Dubai real estate sector which had been showing a marked improvement for the first two months of the year, with both January and February having significant increases of 12% and 33% respectively. Property Finder noted that last month, there was a 76% jump in off-plan transactions – 504 for villas and 2.25k relating to apartments., with DLD reporting 4.4k monthly transactions, valued at US$ 2.6 billion. Whether the pandemic dents this recent uptick remains to be seen. Two of the more popular off-plan apartment developments have been Creek Beach, Dubai Creek Harbour, and Burj Crown, Downtown – with sales of 140 and 139 units in February. Arabian Ranches 3 and Dubai South topped the popularity charts for off-plan villa projects.
ValuStrat estimated February saw a continuing slowdown in Dubai real estate prices, dipping 0.8%, although twelve-month prices had fallen 10.1%, with an average weighted average capital value of US$ 256 per sq ft. All locations witnessed declines that ranged from 0.6% in JLT to 1.5% in Discovery Gardens. The transacted sales price is US$ 254 per sq ft – almost the same as in 2012, when the then market started its record bullish phase. During February, month on month home sales, comprising 32% of all residential cash sales, were 7.0% higher, with off plan sales almost doubling!
According to Knight Frank’s Wealth Report 2020, Dubai, whose prime property prices only dipped 0.7% in 2019, rated 18th in the world of the most expensive locations for prime real estate. In Dubai, it is estimated that for US$ 1 million, investors can purchase 154 sq mt of prime real estate – a long way short of the likes of Monaco, Hong Kong and London where the same outlay will bag only 16.4 sq mt, (more than nine times less when compared to Dubai),, 21.3 sq mt and 30.4 sq mt respectively. Only two countries in the 20-location survey came in lower – Cape Town and Sao Paulo with 174.3 sq mt and 202 sq mt.
The ambitious US$ 5 billion Heart of Europe megaproject on The World Islands will see the first phase of three islands – Germany, Sweden and Honeymoon Islands – handed over by October; this will comprise the 489-suite Portafino Hotel and 78 floating Seahorses. The first nine of these three-level floating homes are already in place and are being anchored into position, whilst 78 villas on Honeymoon Island will be handed over by the end of the year. Phase 1 also includes 17 lagoon villas and 15 beachfront villas on Germany Island as well as ten beachfront palaces on Sweden Island. The company also hopes to hand over the Monaco and Nice boutique hotels at Côte D’Azur beach on the main Europe Island by December. To date, 80 of the 131 units have been sold.
The first week of March saw hotel occupancy levels plummet almost 30%, compared to the same period in 2019, with average daily rates and revenue per room both down 20.4% to US$ 136 and 42.9% to US$ 82 – the rates had decreased for 37 consecutive days. The disappointing Coronavirus data came on the back of much improved January figures, with ADR and RevPar at 86% (16.9% higher) and ADR nudging 0.8% up to US$ 192. Because of the recent accelerated decline, hotels have had to hunker down; for example, Emaar has closed three of its properties – Address Fountain Views, Vida Creek Harbour and Vida Emirates Hills – until 01 September, as it temporarily “refocuses” on certain assets. The QE2 will also close, with immediate effect, until 01 September
In a bid to support its existing business partners and customers, Dubai Holding, with Meraas, have introduced a US$ 272 million relief package. The two Dubai-owned entities will consider each case from impacted customers whether they are companies or individuals. Among the companies that could benefit from this largesse are Jumeriah Group, Dubai Properties, Tecom (including Internet City and Media City) and the Arab Media Group, which includes Global Village and Arabian Radio Network.
As from today, with a few exceptions, all valid holders of UAE residency visas will not be allowed to enter the country until 31 March, as the government clampdown gains momentum in its bid to halt the spread of Covid-19. For those currently out of the country, on business or vacation, the Ministry of Foreign Affairs and International Cooperation has advised that they contact the UAE embassy/consulate for all necessary help to return to the UAE.
As of Thursday, the country had registered 113 cases of Covid-19 which also continues to ravage the local economy. Many companies, particularly SMEs, are already beginning to feel the pinch, as difficult decisions have to be taken which will impact many of Dubai residents. With schools and nurseries already closed, many sectors are in a no-win situation; little or no revenue, allied with continuing costs, will inevitably lead to a massive cash flow problem and a worrying increase in the number of liquidities. Today saw the postponement until next year of the annual Gulf Education and Training Exhibition. However, there are “winners”, as an increasing number of shoppers are going on-line, including Carrefour posting a 59% jump in new customers onto its online platform, with a 32% increase in that sector; this has led the hypermarket to open six new fulfilment centres across the region.
In an opening salvo in the war against Coronavirus, Dubai Crown Prince Sheikh Hamdan bin Mohammed Al Maktoum has launched a US$ 410 million economic stimulus package in a bid to ameliorate the impact of a slowing economy, caused mainly by the onset of Coronavirus. The strategy is to reduce the cost of doing business and to further simplify business procedures, particularly in those sectors hardest hit including tourism, retail, external trade and logistics services. The initial package covers the next three months, with a review dependent on the state of the economy then and whether the virus is still causing concern. There will be a freeze on the 2.5% market fees levied on all facilities operating in Dubai, as well as a 20% refund on the custom fees imposed on imported products sold locally in Dubai markets, the cancellation of the US$ 14k bank guarantee required to undertake customs clearance activity and a 90% reduction in fees imposed on submitting customs documents.
The tourism sector will receive some relief as municipality fees imposed on sales at hotels have been halved from 7.0% to 3.5%, along with an exemption from fees charged for postponement and cancellation of tourism and sports events scheduled for 2020; fees for the ratings of hotels will be frozen, as will be those charged for the sale of tickets, issuance of permits and other government fees related to entertainment and business events. For the man (or woman) in the street, DEWA (and Empower) bills will be reduced by 10%, and deposits cut by half.
The Telecommunications Regulatory Authority announced that Etisalat and Du have agreed to provide free internet data packages via mobile phones to ensure that those with no internet can continue with virtual training, with the rest of the country’s students as the schools remain closed.
The Central Bank introduced a US$ 27.2 billion stimulus package that includes a number of measures in “an effort to support the economy and protect consumers.” The Targeted Economic Support Scheme includes US$ 13.6 billion from central bank funds through collateralised loans at zero cost to all UAE banks in the country and the rest of the funds freed up from banks’ capital buffers. The authority confirmed that with over US$ 10 billion in foreign currency reserves there are enough funds to “safeguard the stability of the national currency and achieve the CBUAE’s objective to ensure monetary and financial stability in the state”. The regulator ordered banks to use the funding “to grant temporary relief” to private sector corporate customers and retail clients for a period of up to six months, as “many retail and corporate customers have become exposed to the risk of temporary shortfall of their cash flows due the outbreak of Covid-19 pandemic, and the scheme is addressing the current situation by providing both a relief to customers and a zero cost funding to banks.” The banks were ordered to “treat all their customers fairly” and grant “temporary relief” on retail clients’ loan payments for up to six months from 15 March. The government will extend measures to stimulate the economy if so required in the future.
The central bank also cut interest rates on Monday following the 0.25bp reduction announced by the US Federal Reserve late on Sunday. The UAE Central Bank trimmed its interest rate on one-week certificates of deposit by 75bp and decided to maintain the repo rate, applicable to borrowing short-term liquidity from CBUAE against CDs, at 50 bp above the one-week CD rate.
The central bank has also issued the “Dormant Accounts Regulation” which stipulates new rules for dormant bank accounts. These require banks to transfer funds to the regulator after three years (not the previous six) of no activity and allow customers to access balances at any time.
Billionaire BR Shetty’s problems go from bad to worse, with news that the payments and foreign exchange company he founded has been suspended from trading on the London Stock Exchange. Finalbr warned that there is “material uncertainty about the group’s ability to continue” at a time when its chief executive, Promoth Manghat, has stood down and that the board was unable to assess its financial position. The company, founded in 2018 to consolidate Shetty’s finance brands including Travelex and UAE Exchange, was then worth US$ 1.5 billion; now it is valued at just US$ 81 million, having slumped 94% since its London debut.
To add to his troubles, the UAE Central Bank is to oversee the operations of his currency exchange firm, UAE Exchange, after parent company Finablr appointed an accountancy firm to undertake “rapid contingency planning” for an insolvency process; the company has discovered, inter alia, cheques to the value of US$ 100 million “which may have been used as security for financing arrangements for the benefit of third parties”. The central bank is to verify whether all laws and regulations have been carried out by the exchange which has halted all transactions, with the exception of payments though the country’s Wage Protection System.
The central bank has had a busy week and is currently in discussions with its Pakistani counterpart, with a warning that it would sanction a UAE branch of a Pakistani bank if it were found that it had breached anti-money laundering laws. There had been reports that the UAE branch of one of Pakistan’s largest banks had displayed “significant irregularities” in dealings with politically exposed clients, (including opening accounts account for Duduzane Zuma, the son of former South African President Jacob Zuma, and for relatives of Gabonese President Ali Bongo), and screening some transactions.
Shuaa Capital saw total 2019 operating income more than doubling to US$ 76 million, as its net profit to owners dipped 18.0% to US$ 13 million, having made US$ 6 million worth of impairment provisions against the value of some assets. This was its first full year results since last August’s reverse takeover by Abu Dhabi Financial Group which created an entity with US$ 12.8 billion of assets under management, more than 12.5k clients and 380 employees. Despite Coronavirus and sinking oil prices, the company is setting “the foundation for significant and sustainable growth.” By the end of 2019, the company had divested itself of both its brokerage arm, Shuaa Securities, as well as its equities market-making unit for US$ 27 million; both were considered as non-core assets.
The Dubai Financial Market (along with the Abu Dhabi Securities Exchange) has decided to halve the limit to 5% that causes trading to cease, once losses hit that level on the day. Both markets will retain the 15% stop limit on any gains in one trading period. The move was made following huge market fluctuations in recent days caused by the Coronavirus.
The bourse opened on Sunday 15 March, and 406 points lower (14.2%) the previous three weeks, had another torrid week slumping 642 points (26.1%) to close on 1819 by 19 March 2020. Emaar Properties, having lost US$ 0.36 the previous three weeks, was US$ 0.09 lower at US$ 0.61, whilst Arabtec, US$ 0.08 down over the same period, was US$ 0.02 lower at US$ 0.13. Thursday 19 March saw the market trading 529 million shares, worth US$ 105 million, (compared to 428 million shares, at a value of US$ 280 million, on 12 March).
By Thursday, 19 March, Brent, having slumped by US$ 17.79 (34.9%) the previous week, continued its downward trend losing a further US$ 4.75 (14.3%) to close at US$ 28.47. Gold, US$ 127 (8.1%) higher the previous five weeks, finally gave it and more away sinking by US$ 211 (12.5%), closing, on Thursday 19 March, at US$ 1,479. There is no doubt that the Saudi-Russian oil spat will be resolved sooner than Coronavirus and that in itself will be a small step to global recovery.
On Wednesday afternoon, oil prices slumped to their lowest level in eighteen years, to US$ 27.10, driven by three factors – Coronavirus, the Saudi/Russian oil spat and the slump in air travel demand. Despite oil prices sinking, Saudi will push up its output by 23% to 12.3 million bpd next month and the UAE will lift production higher to four million bpd. This will have a drag impact on prices which will inevitably head south and remain within the US$ 20 – US$ 30 bpd level until the two countries come to an agreement. One obvious casualty from this fall-out will be the high cost producers, especially those in the US shale gas sector. If that happens watch out for trouble with US banks who will take a major hit in bad debts.
In its first annual results since Aramco’s December’s listing on the Saudi Tadawul, the oil giant posted a 20.6% decline in profits to US$ 88.2 billion, driven by low oil prices and production levels: it also made $1.6 billion of impairment provisions for losses associated with Sadara Chemical Company. As an indicator that the company is going through a rough patch, not helped by the Coronavirus and its spat with Russia, it has cut its 2020 capex to between US$ 25 –US$ 30 billion down on last year’s US$ 33 billion and also lower than the US$ 40 billion announced in its IPO prospectus. By last Sunday, its market value had fallen by around 25% to US$ 1.5 trillion from its December peak of US$ 2.0 trillion but it still remains the world’s richest company.
PSA Group, the parent company of Vauxhall, is to close all fifteen of its European manufacturing plants, including two in the UK – Luton and Ellesmere Port – until 27 March attributable to a “significant” drop in demand and disruption to supply chains; Fiat Chrysler will do likewise for the majority of its European factories. In addition, Ford and Nissan has closed down in Spain and Italy.
There will be 2.9k redundancies when Carphone Warehouse closes all its 531 standalone stores on 3 April, driven not by the Coronavirus but by a shift in the mobile market; its other 305 big PC World and Curry’s stores, will remain open. However, a further 1.8k will take up new positions in the business. The move comes with data showing that customers are shying away from the smaller standalones, preferring to utilise online and big stores; the “small” business unit represent 8% of Dixons Carphone’s total UK selling space and is expected to lose US$ 110 million this year.
With Coronavirus gaining traction in the US – and with it an increased surge for online orders – Amazon.com will hire an additional 100k warehouse and delivery workers to meet the rising demand. Furthermore, US supermarket chains Albertsons, Kroger and Raley’s are in the market for additional labour for the same reason and have a ready-made source because of the huge number of redundancies in the restaurant, travel and entertainment businesses.
So as to reduce the spread of Coronavirus, Apple has closed all its retail stores outside “Greater China” until 27 March 27 and has also introduced global flexible work arrangements, where practicable. At the same time, it will continue deep cleaning at all its 460 sites and introducing new health screenings and temperature checks. In February, all Chinese Apple outlets were closed but reopened last Friday. Meanwhile, this week, it was confirmed that the French regulator had fined Apple a record US$ 1.2 billion over anti-competitive practices.
It seems that the Trump administration is determined to keep Boeing flying despite all its recent setbacks, including the continued grounding of the Max 737 that started twelve months ago. Now the cash-ridden plane maker is seeking at least US$ 60 billion in US government aid for itself and suppliers. With its latest problem – Coronavirus, which is wreaking havoc, as the demand for air travel slumps – Boeing has seen further serious falls in its share value that have tanked 62% since the start of 2020. The US travel industry has been technically knocked out and the Trump administration is looking at a US$ 1.2 trillion bailout fund to help reduce the negative impact of the current crisis. It is reported that the trade group, Airlines for America is fighting for a US$ 50 billion package of loan guarantees and grants for its members, whilst a hotel association is lobbying for US$ 150 billion in backstop measures.
In Australia, Flight Centre confirmed that it will close 100 stores across the country, with the number of redundancies as yet unknown, as “increased travel restrictions mean demand is softening significantly and [the] timeframe for recovery is unclear”.
On Monday, the Australian Stock Exchange experienced its worst ever trading day as the All Ordinaries Exchange lost 9.5% to 5,058 points; since 20 February, the index has lost over 30% (US$ 110 billion) in value. All four big bank stocks lost over 10% on the day and only three of the 200 stocks showed a gain; major losses of over 15% were seen in energy stocks (Oil Search and Santos) and travel-related companies – Webjet, Corporate Travel and Flight Centre. The RBA “stands ready to purchase Australian government bonds” to keep the financial system functioning. The Australian dollar fell to its lowest level since the GFC, trading at US$ 0.61 by Monday close; the situation deteriorated over the week, closing on Thursday on US$ 0.57 – more than 12% down so far in March and 20% YTD. By the end of Tuesday, the market reclaimed most of the previous day’s losses, with the ASX 200 5.8% higher. Despite this spike, the bourse, at 5,293, was still 26% lower than its 20 February peak and dipped even lower by the close of Thursday trading to 4,783 – 28.5% lower from its 01 January opening of 6,691.
On Thursday, the RBA cut rates to a record low of 0.25%, as well as launching quantitative easing totalling US$ 15 billion to help smaller lenders to support consumers and SMEs. This is the first time that QE has been seen in Australia, with a three-year US$ 50 billion facility aiming to provide cheap money, at 0.25%, for Australian banks. With the distinct possibility of huge job losses, the Reserve Bank governor, Philip Lowe. said that this historically low rate could be at this level for some years. He noted that before the Coronavirus hit, we were expecting to make progress towards full employment and the inflation target . . . . . recent events have obviously changed the situation.”
The Bank of England has gone all in with the big guns at the end of the week by cutting rates again – this time by 15bp to just 10bp as well as buying up US$ 240 billion of UK government and corporate bonds; the latest QE program, which creates digital money to purchase debt, will bring the BoE’s total asset purchases to over US$ 750 billion. The move came as surprise to the City on two counts – its timing and its amount. Only in January, the then governor, Mark Carney, said he thought there was the capacity for the markets to absorb a further US$ 144 billion of QE which would equate to a 1% cut in interest rates. The size of this package is equal to 9.0% of the UK GDP, compared to the ECB’s and the Fed’s earlier moves which equated to 7.0% and 3.3% of their respective GDPs.
The Philippine stock market tanked on Thursday, with the broader index dropping 24% – and this after a two-day closure following the introduction of Coronavirus quarantine measures. Despite all the money being pumped into global markets by central banks, panic is still driving market sentiment. With US$ 10 billion being expatriated out of the country so far this month, there is no surprise to see both the Indian markets and currency head south; the rupee skated past the key 75 mark, its lowest ever level, while the S&P BSE Sensex index shed 7.5% on the day. With fragile market sentiment unlikely to go away in the coming days, investors are heading for safe havens, such as the greenback, as risk assets come under increased downward pressure.
Following an unscheduled Wednesday meeting, the ECB surprised the market by launching a mega US$ 820 billion emergency bond purchase scheme in the hope of stymying a spiralling economic and financial crisis. The world is looking at a global financial crisis bigger and more harmful than the one in 2008, as the world leaders and central banks look at ways to steady the markets and pull them out of an inevitable recession. As is normal procedure, the ECB’s purchases will be carried out pro rata to each country’s capital key, their actual stake in the bank. The bank warned that it will not tolerate a surge in yield spreads between euro zone members, as has been the case in the past. Surprisingly this move, just like the UK’s measures two days earlier, disappointed investors. At the same time, its minus 0.5% deposit rate remained unchanged, probably indicating that a future reduction is unlikely in the short-term. It seems the EU have a long way to go to get their economic house in order.
A week after a surprise 50bp cut, the US Fed knocked a further 25 points off interest rates to a target rate of 0% to 0.25%. as part of a coordinated action with the UK, Japan, Eurozone, Canada and Switzerland. Noting that the pandemic was having a “profound” impact on the economy, Fed chairman, Jerome Powell, launched a US$ 700 billion stimulus package – pumping money directly into the economy. The two recent rate cuts were the first outside of a regularly scheduled policy meeting since the 2008 GFC. It seems that the markets were not impressed – shedding 4% the following day and the Dow Jones index closing 12.9% down, after President Donald Trump said the economy “may be” heading for recession.
On Wednesday, the US President signed into law a relief package to marshal critical medical supplies against the coronavirus pandemic and an aid package that will guarantee sick leave to workers who fall ill. The next day the Fed announced that it would purchase another US$ 10 billion of mortgage-backed securities, part of a larger package of US$ 200 billion in mortgage bonds. The administration proceeded with its broad economic rescue plan to “helicopter drop” US$ 500 billion in individual cheques to all Americans. There was another roller coaster ride on US markets but by the end of Thursday’s trading, all three markets had posted gains – Nasdaq Composite up 2.3%, the S&P 500 0.5% and the Dow 1.0% or 188 points – the first time since 06 March that the index had closed within 1,000 points from its day opening price,
The start of the week saw global stock markets tanking again and this, despite a co-ordinated effort to ease the Coronavirus impact, including the US Fed cutting rates to almost zero and introducing a US$ 700 billion stimulus package. The Dow Jones lost 12.9% and London’s FTSE was 4.0% lower. With rates hovering around the zero mark, it leaves global central banks with little ammunition to introduce more fiscal measures to combat this pandemic. However, the new BoE governor, Andrew Bailey, has pledged to take “prompt action”, when necessary, to continue to stop the economic damage being caused by coronavirus.
Having fallen 10.7% in eight days, sterling was trading on Wednesday afternoon at US$ 1.179 to the greenback – its lowest level since 1985, driven by the herd instinct of investors fleeing to safe haven currencies such as the US dollar; by Thursday it had declined further to US$ 1.16. Whilst Covid-19 continues to spook the world, along with a limp market sentiment, the greenback will remain strong.
Probably the biggest global sector to be impacted by Coronavirus is tourism with the World Travel and Tourism Council touting that up to 50 million jobs could be lost; the global trade body also warned that the travel sector could shrink by 25% this year. Not surprisingly, it has made several requests to governments including removing and simplifying visas where possible (plus reducing costs), reducing travellers’ taxes and increasing budgets for promoting travel destinations. More and more countries are introducing travel restrictions, with a devastating impact on carriers. Chinese airline passenger numbers slumped 84.5% in February, (losing US$ 2.4 billion in revenue), and most leading airlines including BA, Emirates, Etihad and Norwegian have all cut flights in response to the outbreak. Qantas and Jetstar will cut international capacity by about 90% and domestic capacity by 60%, grounding 150 aircraft until 31 May. The three largest airlines in the US — Delta, American Air Lines and United – are in talks with the government about potential assistance amid a dramatic drop-off in air travel demand. IATA has expressed concern that carriers could fold over the next few months unless massive aid packages are made available.
The loss of Chinese tourists will be a major blow to places like the UK and Dubai. In the twelve months to September 2019, 415k Chinese visited the UK, with each one spending US$ 2.2k (three times that of the average visitor). The questions are how many will visit this year and how much will each spend; the answers are fewer and a lot less.
Overall, the cost of this pandemic is so far immeasurable. All that governments can do is to throw money at the “problem” without much planning going into the process. For instance, the IMF is ready to mobilise US$ 1 trillion in lending capacity to help nations combat the deadly Coronavirus outbreak, whilst indicating that the need for a co-ordinated global fiscal stimulus is becoming urgent “by the hour”. The EU is to put a US$ 43 billion investment initiative in place which will include a US$ 9.0 billion loan guarantee for some 100k firms; it is also supposed to give member states flexibility on budget deficits and state aid. The new EC President Ursula von der Leyen said, “I am convinced that the European Union can withstand this shock, but each member state needs to live up to its full responsibility and the European Union as a whole need to be determined, coordinated and united.” Little hope of a united front when one sees the disunity as individual European countries take unilateral action to close their borders!
In 2007, Dean Kuuntz came out with a book, “The Eyes of Darkness”, in which on page 312 he wrote “In around 2020 a severe pneumonia-like illness will spread throughout the globe, attacking the lungs and the bronchial tubes and resisting all known treatments. Almost more baffling than the illness itself will be that it will suddenly vanish as quickly as it arrived, attack again ten years later and then disappear completely.” It continued on the next page “that a Chinese scientist named Li Chen defected to the US . . . . . They call the stuff ‘Wuhan-400’ because it was developed at their RDNA labs outside of the city of Wuhan, and it was the four-hundredth viable strain of man-made microorganisms created at that research center”. Although this is a piece of fiction, it is about time that the world wakes up and if governments want to spend billions of their people’s money, it should be spent on germ warfare and not nuclear and other warfare. It is spooky that this pandemic was prophesised thirteen years ago by a Paperback Writer.