It’s The End of The World As We Know It!                                              26 March 2020

Savills hope that the current disruption to the local real estate sector will be short-lived and reckons that the Coronavirus threat does not point to a long-term fundamental downturn, but more of a kneejerk reaction. The global real estate consultancy concedes that several sectors – such as hospitality, retail, tourism and travel – will take major hits that will inevitably take time to return to pre-virus normality. The first two months of the year had seen a marked increase in sales transactions, at a time when mortgage interest rates were heading south, and developers were offering attractive deals – and even bank mortgage charges were being lowered.

Despite these turbulent times, Damac has launched its A La Carte Villas initiative that allows buyers to select their own villa type, layout, landscaping, interiors and furnishings. The developer reckons that this is the first time that Dubai consumers have been able to design their new homes to their personal requirements. Located at its 42 million sq ft Damac Hills development, starting prices for the 3-4 B/R villas start at US$ 409k. Latest figures show that Damac has already delivered 27.4k units to the market with a further 35k in the pipeline.

Following the closure of three of its properties last month, Emaar Hospitality has decided to shut the doors on three others, as the Coronavirus gains increasing traction not only here but also on an almost global scale.  This time, The Address Skyview, Address Dubai Mall and Palace Downtown will be closed until 31 May, with Emaar stating that “we can confirm that we are consolidating our business to specific hotels and locations based on dates and demands, in order to maximise guest experience.” Meanwhile, its parent company has announced that all staff were being instructed to work from home.

Dubai’s Crown Prince, Sheikh Hamdan, has issued a direct and personal plea to UAE residents, stressing that current social distancing orders are “not a matter of choice”, but a “critical demand”. He also recorded his “thanks to the tireless and incredible efforts of our emergency response team, we have managed to protect ourselves and our communities till date”. However, he did warn “We (Dubai) are not immune.” By Thursday, the number of confirmed COVID-19 cases had hit 333, with two reported deaths.

With the exceptions of buying essential supplies or performing vital jobs, the UAE government has urged residents to stay at home wherever possible; the obvious dual aims are to limit social contact between people and to avoid crowded places at a critical time in the Coronavirus cycle. The public is also being urged to avoid visiting hospitals, except for critical or emergency cases. The government announced that it will temporarily suspend all passenger and transit flights for two weeks as from Tuesday 24 March. (Earlier, Emirates had announced it would suspend all flights as from Wednesday but then indicated that having “received requests from governments and customers to support the repatriation of travellers”, it would continue to operate passenger flights to thirteen destinations). Another government decision saw the Wednesday closure of all commercial centres, and shopping malls, along with fish, meat and vegetables markets for a period of at least two weeks. Authorities have allowed food retail outlets, including cooperative societies, grocery stores, supermarkets and pharmacies, to remain open 24 hours a day but must limit their capacity to 30%..Today, it was announced that public transport and metro services would be suspended from 8pm Thursday to 6am Sunday to sanitise all public facilities.

Local banks have now come to the party by introducing a number of relief measures for those customers impacted by the Coronavirus. There will be repayment holidays of three months, with zero interest and fees, for retail loan customers who have been placed on unpaid leave and one month for those with personal loans, auto loans or mortgages. First-time homebuyers will have their processing fees waived and will see a 5.0% increase in their Loan-to-Value ratio. There will be no charges for debit card cash withdrawals from ATMs. In addition, credit card holders can utilise an interest-free instalment plan for all school fee payments and grocery purchases, with no processing fees for six months. Furthermore, SME customers, who have taken out business loans, can apply for a three-month payment holiday, with zero interest and fees, whilst the minimum balance charges will be waived for the same period. Wholesale banking clients, including healthcare, aviation, hospitality, retail, event management, consumer goods and education, will be offered refinancing, repayment deferrals or lower repayments where required. Banks will also be offering clients enhanced credit and trade lines to manage ongoing operational costs. With so much volatility on the UAE bourses, banks will offer suitable instalment payment plans against additional collateral to help those customers that need to regularise their margin trading positions.

In these troubled times, Carrefour has seen year on year online orders jumping 300%, as many shoppers keep themselves well-stocked at home. Although the number of in-store shoppers has fallen, there has been a 55% hike in purchases revenue seen mainly in basic commodities and hygienic products, along with a “huge” rise in the sale of freezers, printers and routers.

Nakheel will offer a US$ 63 million package of relief measures to its commercial and individual tenants to help with the financial fall-out of Coronavirus. The package will include free rental periods for retail and hospitality customers, operating within its malls, and small business owners within master communities. Other assistance will comprise cooling charges being cut by 10% and administration charges waived for three months.

Network International is offering US$ 1.4 million in cash and other support to help its smaller customers, including US$ 1k to 1k of its “most severely impacted” merchant clients across all industries. To further help customers, suffering from the pandemic, the payments processor also waived minimum transaction fees for the next three months. This comes after the UAE cabinet approved a further US$ 7 billion to add to the US$ 27 billion package to support banks, introduced last week. This is in addition to a raft of measures introduced by both Dubai and Abu Dhabi governments to shield parts of the local economy from the impact of Coronavirus.

The Central Bank of the UAE revealed a 6.4% year on year record hike in the country’s gross banking assets to US$ 810 billion, last month. At the same time, the value of deposits was 3.4% higher at US$ 498.1 billion, compared to February 2019, with an 14.3% jump recorded in total investments by the country’s banks to US$ 111.6 billion. Meanwhile, on the credit side, gross credit was 4.4% higher at US$ 475.5 billion and domestic credit 3.1% up at US$ 428.1 billion. Government and private sector credit had February balances of US$ 63.1 billion and US$ 310.6 billion respectively.

Embattled NMC Health confirmed that the Group now has to pay off US$ 6.6 billion in loans – a lot more than the US$ 5.1 billion, just recently estimated, and includes a US$ 360 million convertible fund and a US$ 400 million sukuk.  These debts are with 80 financial institutions, covering 75 debt facilities, including US$ 800 million of Board unapproved “newly identified facilities”, that were undisclosed as of June 2019 and US$ 400 million of facilities entered into post June 2019 and that were unidentified as of 10 March. After being on extended leave for “ill-health”, Prasanth Shenoy has resigned as CFO with immediate effect.

The Ducab Group, owned by the Dubai and Abu Dhabi governments, posted a 5.0% hike in 2019 profits, with no other financial data made available. The company operates four sites, (and six manufacturing facilities), in the country with a total annual capacity of 115k metal tonnes of high, medium, and low-voltage cable solutions, 175k tonnes of copper rod and wire and 50k tonnes of aluminium rod and overhead conductors. 60% of production is exported to more than thirty countries whilst supplying 90% of the cable requirements for the upcoming Expo 2020. Recently, the copper and aluminium businesses were consolidated into a single unit – Ducab Metals Business – which generated US$ 545 million revenue last year, of which 75% was exported.

The bourse opened on Sunday 22 March, and 1048 points lower (37.6%) over the previous four weeks, had an up and down week but ended almost flat, shedding only 10 points to close on 1809 by 26 March 2020. Emaar Properties, having lost US$ 0.45 the previous four weeks, was US$ 0.02 higher at US$ 0.63, whilst Arabtec, US$ 0.10 down over the same period, was flat at US$ 0.13. Thursday 26 March saw the market trading lower at 265 million shares, worth US$ 95 million, (compared to 529 million shares, at a value of US$ 105 million, on 19 March). 

By Thursday, 26 March, Brent, having slumped by US$ 22.54 (44.2%) the previous fortnight, continued its downward trend losing a further US$ 2.13 (7.5%) to close at US$ 26.34. Gold, down US$ 211 (12.5%) the previous week, regained that deficit to close US$ 219 (12.2%) higher, on Thursday 26 March, at US$ 1,660.

So as not to harm the economy when it does eventually rise again after the abatement of Covid-19, the UK Conservative government decided it would be better to pay employees, forced out of work temporarily, 80% of their pay (up to US$3k per month) until normality returns. Then the economy will be able to start running from the word go instead of having all the problems usually associated with enforced start-ups. With all the infrastructure – manpower, systems and logistics – already in place, production can then quickly return to pre-Coronavirus levels – and ahead of international competition where employees had to be laid off. Courageous moves like this, (usually unheard of by a Tory government), cost billions of dollars but the pay-off should be worth a lot more both economically and socially.

On Thursday, the Chancellor of the Exchequer Rishi Sunak also announced an economic relief package for freelancers, not in PAYE employment. They can now claim 80% of their average income over three years up to US$ 3k, with businesses having profits US$ 61k able to claim 80% of their average profits of the last three years. The one drawback is that the money the government has borrowed will have to be repaid but it would have stopped up to an extra one million joining British dole queues.

As a direct result of the virus – and the increase in demand for food and other supplies – supermarkets have begun to hire, with the likes of Aldi, Asda, Lidl, Morrisons and Tesco recruiting 5k, 5k, 2.5k, 3.5k and “thousands of new colleagues” respectively. Unfortunately, for some of these new employees, the recruitment took place before the government announcement that it would pay 80% of wages for those affected by the pandemic.

Sir Philip Green’s Arcadia retail group is but one retailer who has decided to close all its stores which includes Topshop, Topman, Dorothy Perkins, and Miss Selfridge; it will focus on its digital and social platforms for sales. As High Street footfall has dropped by 40%, other closures include McDonald’s shutting down all of its 1.3k restaurants, Nando’s 400 outlets with Pizza Express, Costa Coffee, Itsu, Eat and Subway all their branches. Primark has closed all its 189 stores “until further notice”, John Lewis its total of fifty shops and Timpson all its 2.2k outlets. Other retailers locking up until the sun shines again include Debenhams, Next and Waterstones,

Having earlier suspended all its international flights, Virgin Australia is now slashing its domestic capacity by 90%, whilst temporarily standing down 8k of its 10k staff; the remaining 10% capacity will be utilised for essential services, freight and logistics.

In a bid to boost its liquidity, the board of Airbus approved a new US$ 16.1 billion credit facility to deal with the economic fallout from the coronavirus outbreak; this would be in addition to an existing US$ 3.2 billion revolving credit facility. It also decided to drop the 2019 proposed dividend of US$ 1.90 per share, totalling US$ 1.5 billion.

IATA estimates that the world’s airlines could lose US$ 252 billion in revenue and post a 40% slump in traffic this year that could also see the end of some major players; this estimate is almost double the amount indicated just two weeks ago. The whole industry is facing a cash crisis and the need for government support to help with some rescue plan is of paramount importance. The global agency, which represents 290 airlines, estimates that only thirty of them have reasonably healthy debt and earnings but even those would have to close by Q3 if no action is taken.

Australia is one country that could be a big loser, when the first round of Coronavirus finally comes to some sort of end, as even before its onset, the country was reeling from a double whammy of the devastating bushfires and a slowing Chinese market for its commodities. There are some who believe that in a worst-case scenario, Australia, already laden with one of the biggest global household debts, could see a deep recession, unemployment rates in excess of 10% and property prices slumping by up to 20%.

By Monday, two of the BRIC economies saw their currencies spiral downwards – the Indian rupee slid down to its record low of 76.446 to the greenback, (having fallen 6.4%  in the past four weeks), whilst the South African rand fared even worse, sinking 15.0% to 17.75 by the end of Monday trading; the bad news is that investors seem unable to get enough of the dollar and that both currencies will continue heading down. Thursday was a good day for the Indian markets as both the Sensex and the Nifty 50 rose on the day, (and also for the third consecutive day), closing on Thursday 5.0% higher at 29947 and 4.0% to 8641 respectively. The rupee improved to close at 74.86 at the end of Thursday, as did the rand to 17.36. By the end of the week, the Modi government had introduced a US$ 22.6 billion stimulus package, including cash transfers as well as steps on food security. Asia’s third largest economy will also have an insurance cover of US$ 67k for medical workers.

Meanwhile, amid the backdrop of a global recession and the rampant pandemic, sterling is getting hung out to dry as panic and fear grip the economic world. Investors are ditching traditional” safe bets”, including US treasury and municipal bonds, to satisfy their cash requirement at a time when in one session last week, US benchmark 10-year and 30-year bond yields posted their biggest jumps since 1982. There is no doubt that the US economy is in temporary lockdown, with latest figures showing that the number of Americans filing for unemployment topped a record 3.3 million for the latest week – a whopping five times the previous record in 1982 of 695k and brings to an end of a decade of expansion; it seems that 20% of the US employment  is under lockdown. There is no doubt that the situation will become even worse over the coming weeks. It seems that the unemployment rate will nearly double to 6.5% by the end of the month – more than double the figure just four weeks ago.

Another Asian country is facing increasing economic problems – Singapore posted a 2.2% GDP contraction, year on year, and a very disappointing 10.6% decline over the previous quarter; it seems that the island state will experience its first recession in over twenty years – and this could be an early indicator how the other global economies come out of this crisis in the future. This week, the government came out with a US$ 33.7 billion package to counteract the negative impact of the current pandemic.

Cash strapped Lebanon will no longer pay all its outstanding dollar-denominated eurobonds, in a bid to preserve its dwindling forex reserves. The country, which is experiencing its worst economic crisis in thirty years, failed to pay a US$ 1.2 billion bond earlier in the month and still holds about US$ 31 billion in bond maturities, of which one for US$ 700 million is due to be repaid in April and a further US$ 600 million, two months later. The Central Bank hold 43% of this debt with a further 33.4% owed by the country’s financial institutions. Lebanon, still trying to rid itself of this economic malaise and to restore stability, has a massive 166% debt to GDP ratio, with its public debt jumping 7.6% to US$ 91.6 billion last year.

The OECD painted a dismal picture of the world’s economy saying that it will take years to recover from this pandemic, now a bigger shock than the GFC, and anyone thinking the bounce back will be almost immediate are “wishful thinking”. The world body’s recent forecast of 2020 global growth halving to 1.5% is now considered far too optimistic as many of the bigger economies will fall into certain recession in the coming months, as job losses and company failures move upwards. On Monday, Australian shares had shed US$ 60 billion as the rout continued unabated with an increasing number of factories closing their doors and states shutting their borders. This latest fall in the ASX 200 sees its level the same as it was in November 2012, whilst the dollar continued in freefall to trade at around US$ 0.57 – a seventeen-year low. At this rate, even S&P’s growth forecast of 0.4% seems to be a little pie in the sky. However, by the end of Thursday trading, the Australian stock market had posted its third straight day of gains, despite the meltdown of companies laying off staff and hunkering down; on the day, the ASX was 2.3% higher at 5,113 and the All Ordinaries index up 2.6% to 5,135, a sign that there has been a trickle-down effect from recent government stimulus measures. Thursday proved a positive day for most global markets with rises across the board including the FTSE 100 2.24% higher at 5815, the Dow Jones up 6.38% at 22552, Nasdaq 5.60% to 7797 and the S&P 500 6.24% to 2630. Sterling came off its earlier week lows trading at 1.23 to the dollar and 1.11 to the euro.

Latest data from Japan and Australia epitomises what is happening in the whole world – they are both in lockdown, have empty supermarket shelves and have released activity surveys, showing the dire straits of their economies.  Japan’s Purchasing Managers’ Index confirmed that both its service and manufacturing sectors slumped 14.1, month on month, to 32.7 and 3.0 to 44.8. (Any figure below 50 indicates contraction). These figures would probably see a 4.0% contraction in the economy this year – and probably more now that the Tokyo Olympics have been postponed. In Australia, the PMI figures saw the services sector fall to a record 39.8 record low in March. These figures were replicated on the other side of the world, with the euro zone composite PMI down to 38.8 and the UK manufacturing down 3.7 to 48.0, with the US manufacturing and services PMIs at multi-year lows of 42.8 and 42.0, respectively from 51.7 to 48.

With these disastrous figures continuing to flood in, and global stock markets tanking, central banks think they have no alternative but to throw money at the problem. On Monday, the US Fed topped the lot by promising bottomless dollar funding and expanding its asset purchases by “as much as needed”, that includes backing the purchase of corporate bonds for the first time, as well as backstopping direct loans to companies. Later in the week, the US Senate agreed to an unprecedented US$ 2 trillion stimulus package to soften the impact of the coronavirus and shore up the economy. There are two problems that may arise – this type of flagrant monetary policy alone may not be enough to solve the problem and eventually someone has to pay for this surge in printing of money. There are many people that are now “comfortably well off” who, when this crisis is over, will struggle with hyperinflation and a depletion in the value of their assets. As usual, the banks and super rich will be the main beneficiaries of global central banks’ largesse. We will emerge quicker from the current pandemic than we will from the economic blowout. There will be drastic changes to the way we go about our lives and how we lived in the past, (only three months ago!) – some good, some not so – but make no mistake It’s The End of The World As We Know It!