Waterloo                                                                                            22 January 2021

JLL has come out and forecast that Dubai property prices are set to fall again in 2021 by between 5% to 8%, as excess supply remains the sector’s bugbear. According to Dana Salbak, head of research ““Dubai does have oversupply in residential units … and that is likely to put further downward pressure on the market.” The firm notes that the Dubai market was under pressure last year, driven by Covid-19, with prices dipping 8% on the year, whilst forecasting a further 53k units to hit the market  in 2021 – increasing Dubai’s property portfolio by 8.9% to 648k. (Official figures for 2020 are not yet available but at the end of 2019, the emirate boasted 663k units, of which 543k were apartments and 120k were villas). Over the past three years, Dubai’s population has grown 7.3% to 3.192 million, 5.1% to 3.356 million and 1.6% to 3.411 million at the end of December 2020). There is no doubt that there has been a dearth of new releases over the past eighteen months, so the supply line is beginning to slow quite appreciably and that will start to see a move to some sort of equilibrium. One of the main drivers behind the bearish property market has been the low energy prices but with oil breaking out towards the US$ 60 mark, and some looking at a US$ 75 a barrel, there is no doubt that a higher oil price is good for the emirate’s economy and will prove a boon for property prices. Furthermore, a low US$ is another factor that bodes well for Dubai and then add on the Expo factor and the recent regulatory changes taking effect, there is only one direction for the property market to go – and that is north.

Whereas JLL forecast an additional 53k units in 2021, Core reckon a lower number of 39k, driven by significantly lower buying costs and a raft of government-led demand drivers, although developers will adjust supply during the year, in line with consumer demand. The consultancy mentioned that 36k units were added to the Dubai property portfolio last year, indicating that the secondary market rose 7%. It noted that there had been a marked slowdown in the off-plan market, contracting by 32% on the year, and relative resilience in the secondary market, with record transaction volumes seen, largely led by end-user buyers. There is no doubt that interested buyers should focus on villas, in well-developed areas such as The Meadows, which will inevitably see prices move north in 2021. In contrast there is still too much softness for apartments and off-plan villas and apartments which will only see prices plateau towards the end of the year. In 2020, there were sharp declines in apartment prices including 15% lower in Discovery Gardens and Dubailand, with lower 4% falls noted in Downtown and Palm Jumeriah. Since the last property price peak in 2014, villa and apartment prices have tanked 31% and 35%.  With selling prices almost equating to actual cost prices, historically low interest rates and attractivebank packages, this year will turn out to be the best economic opportunity for buyers to purchase their own property. Since the last property peak in 2014, villa and apartment prices have tanked 31% and 35%.

Core also commented on the state of the commercial property sector and noted that there are some landlords offering twelve months’ free rent for clients, signing up for five years., as well as helping with fitout costs. There seems to be up to 50% vacancy rates in some of Dubai’s newer developments. Covid-19 has been particularly unkind to Dubai’s older commercial buildings, with Deira, Bur Dubai and Garhoud witnessing year on year rental falls of up to 25%., with tenants either closing their offices or moving to newer locations in locations such as JLT and SZR. Although JLT and Business Bay are in most demand, they also have seen 2020 rentals declines of up to 20%; average rents in both locations start at US$ 17 per sq ft. The reality of the situation is that this sector will continue to struggle this year as its starts 2021, with a 24% vacancy rate, or 25.2 million sq ft out of a total 104.9 million sq ft office stock. There are bargains to be had for renters this year.

A Dubai-based renewable energy firm is investigating deploying wind capacity to support companies that are cement quarrying in Abu Dhabi and West Africa. Enerwhere, specialising in portable, easy-to-install solar hybrid systems for off-grid projects, believes renewables can be used to help mining and quarrying industries in the UAE and West Africa to reduce their carbon footprint. The company has installed floating solar photovoltaic panel systems off Zaya Nurai island in Abu Dhabi and is already using solar installations to power cement recycling processes at Al Dhafrah. Enerwhere also plans to raise “a double-digit million dollar figure” this year to meet capital deployment for existing projects in solar and battery technology, as well as to expand one of its software systems internationally.

One of the last actions of the departing President Trump was to exempt he UAE from a 10% tariff imposed on metals imports, as from 03 February.  The decision came after the US and the UAE agreed to a quota limiting the volume of aluminium imports and follows the strengthening of bilateral national security and economic ties. The new quota will see Dubai’s aluminium exports return to almost the same level they were before the tariff was imposed in March 2018. The UAE, which is the third-largest aluminium exporter to the US, joined Argentina, Australia, Canada and Mexico who were also exempted. Donald Trump also noted that the measure “will provide effective, long-term alternative means to address the contribution of the United Arab Emirates to the threatened impairment to our national security by restraining aluminium article exports from the United Arab Emirates to the United States, limiting export surges by the United Arab Emirates, and discouraging excess aluminium capacity and excess aluminium production”.

The UAE became the first country in the world to manufacture aluminium using solar power. An agreement between Dubai Electricity and Water Authority and Emirates Global Aluminium will see DEWA supplying EGA’s smelter with solar power from the Mohammed bin Rashid Al Maktoum Solar Park. It is expected in its first year, 560 megawatt hours of solar power will be supplied, enough to make 40k tonnes of aluminium in the first year, with the potential for significant expansion. The solar aluminium is branded under the product name, CelestiAL. This will go some way to make Dubai the most sustainable city in the world and become a global leader in the development and application of scientific and technological advances in the energy sector.

Dubai Maritime City (DMC) reported that, after eleven months of work, 80% of its US$ 38 million road and infrastructure works in Phase 1 of its commercial district are nearing completion. When finished, the site will become a major hub for maritime services and enhance Dubai’s position as a leading global maritime centre. DP World’s purpose-built maritime centre is an integrated, specialised development and will add significant value to the maritime industry and support the expansion of the business community in the UAE.

With online business and e-commerce gaining momentum, the DED Trader licence recorded a 132% growth in numbers to 5.8k last year. This particular permit was launched to licence freelancers at their place of residence in Dubai and enable start-ups to conduct business activities online and across social networking accounts. Interestingly since its 2017start-up, a total of almost 10k licences have been issued, 57% of which were for women. The top three categories were for ‘Marketing Services Via Social Media’, ‘Perfumes & Cosmetics Trading; Portal’ and ‘Sweets & Candies Preparing’. The total number of DED Trader licence groups now numbers 86. The DED licence is issued electronically, with the whole process, including payment, being carried out on-line.

One of Dubai’s best export earners, dnata has invested US$ 40 million in a new, state-of-the art 150k sq ft cargo complex, dnata City North, at Manchester Airport. The company, one of the largest global air services providers, has expanded its operations, that now include 125k sq ft of warehouse space, so that it can process over 150k tonnes of cargo annually. Over the past decade, dnata has made significant investments in the UK to enhance its position as one of the leading players in the country. It currently operates fourteen facilities at six airports and is able to handle more than 850k tonnes of cargo annually across the country. On the global stage, it serves 300 airlines, at 126 airports, in 19 countries, with ground handling, cargo and catering services.

Last year, Dubai Customs posted there was a 30.2% increase in the number of customs declarations to 13.8 million, with 97% of all transactions not requiring human intervention, thanks to their Smart Workspace Platform. Over the same period, there was a 37.4% hike in business registration requests to 250k. Other statistics show that there were 875k refund requests applications and certificates, 475k report and certificate requests and 334k inspection booking requests. These figures are an indicator how well Dubai has weathered the economic environment during Covid-19. The success of recent innovative measures is reflected in the fact that only 0.6% (102k) of the total transactions were carried via a personal visit, with the remainder (15.9 million) split between smart channels (62.8%) and electronic channels (37.5%).

According to the Central Bank, in the seven months to November, the total assets of Dubai and Abu Dhabi banks rose 1.7% to US$ 803 billion of the UAE; Dubai banks’ total came in at US$ 413 billion. These two emirates accounted for 92% of the total bank assets in the country, with the other five emirates making up the balance.. Year on year to September, there had been a 7.6% jump, to US$ 886 billion, in the total assets of all banks operating across the UAE. The total loans and advances given by Dubai banks were US$ 236 billion and deposits taken at US$ 226 billion. The combined value of the capital and reserves of Abu Dhabi and Dubai banks totalled US$ 100 billion, which constitutes about 92% of the total capital and reserves of the UAE banking system. In their most recent report, Fitch considered the general business and operating environment for banks in the UAE to remain as challenging in 2021 as it was in 2020, and that defaults are set to rise as government support measures wane. It also expects the asset quality of UAE banks to deteriorate this year, as payment holidays expire and not all borrowers being  able to weather the downturn with real estate, contracting, retail, aviation and hospitality being the most affected sectors.

At the beginning of the week, Al Mal Capital REIT started trading on the DFM, the culmination of collaboration between the bourse, the Securities and Commodities Authority and Dubai Land Department, that expands and also diversifies share investments open to investors. The listing follows the successful November floating of the new fund by Al Mal Capital, raising US$ 95 million. These funds will be invested by the company in a Sharia-compliant diversified portfolio – including healthcare, education and industrial – of companies’ income generating properties, with a target 7.0% annual return. Dubai Investments owns 66.61% of the shareholding. It is expected that this new class to the market will encourage other Reits, (Real Estate Investment Trusts), to join the local stock market which in turn will also have a positive knock-on impact on the Dubai property sector. The DFM has signed an MoU, with the DLD, as a general framework for their collaboration as well as drafting attractive rules for creation, listing and trading of Reits in collaboration with the SCA. One of the aims is to facilitate accessibility for future Reits to trade on the DFM by making the whole process streamlined to meet the needs of such entities. The other benefit is that since real estate tends to be capital intensive, a listing on the share market is a relatively cheap way of funding.

UAE’s  two biggest telecoms companies – Etisalat and du – are to increase the ownership limit for non-UAE nationals from 20% to 49% of its capital; the move still requires rubber stamping by the regulatory authorities and shareholders. However, local and international telecommunication companies are not permitted to hold shares in du and no individual or legal entities are allowed to own more than 5%in the company’s capital, except those holding a current balance of more than 5%. The move is expected to see both share values move north from their current values of US$ 5.31 (Etisalat) and US$ 1.80 (du), with these prices already 14% higher on the week, since the announcement.

Emirates Central Cooling Systems Corporation posted a 3.4% hike in 2020 profits to US$ 246 million, on the back of a 3.0% rise in revenue at US$ 616 million. Empower services 1.25k buildings, with district cooling services and has a customer base of over 140k. By the end of the year, the facility’s total cooling capacity had topped 1.64 million Refrigeration Tons.

The bourse opened on Sunday 17 January and, having gained 344 points (14.6%) the previous fortnight, gained a further 33 points (1.2%) to close on 2,735 by Thursday 21 January. Emaar Properties, US$ 0.13 higher the previous fortnight, traded up again, by US$ 0.01, to close at US$ 1.10, whilst Arabtec is now in the throes of liquidation, with its last trading, late in September, at US$ 0.14. Thursday 21 January saw the market trading at 372 million shares, worth US$ 118 million, (compared to 203 million shares, at a value of US$ 56 million, on 14 January).

By Thursday, 21 January, Brent, US$ 15.12 (36.8%) higher the previous nine weeks, was up US$ 0.77 (1.3%) in this week’s trading to close on US$ 55.43. Gold, US$ 56 (2.9%) lower the previous week, gained US$ 11 (0.6%), by Thursday 21 January, to close on US$ 1,864.

With the Organisation for Economic Co-operation and Development investigating environmental destruction and alleged human rights abuses at the massive Cerrejon thermal coal mine in Colombia, there is every chance that the three leading global miners – BHP, Anglo American and Glencore – could be forced to close down the thirty-year old mine. Latin America’s largest mine has long been accused by the local community, including the Indigenous Wayuu people, of forced evictions, pollution and human rights abuses. Late last year, the United Nations showed its concern by calling on the three miners to suspend some operations at the coal mine, The OECD have received formal complaints from the Global Legal Action Network, as well as from a coalition of Colombian and international human rights and environmental groups. GLAN commented that there had been a systemic failure by the mine’s owners to respect basic human rights – and if the OECD thinks likewise, the mining giants could be forced to progressively stop mining, rehabilitate the environment and compensate surrounding communities.

HSBC is to close 16.0% of its 593 UK branches between April and September this year, as an increasing number of customers are turning to digital banking, with coronavirus lockdowns accelerating the move to online banking; no redundancies are expected, with staff moving to nearby branches. The bank commented that branch usage by customers had fallen by over 33% since 2016, and that 90% of all customer contact was over the phone, internet or smartphone.

As he has done for his club Manchester United on many occasions, Burberry hopes that Marcus Rashford will do the same for them. Having seen its sales tank almost 40% during the festive season and underlying sales fall in 9% in Q4 ,it hopes that the Rashford magic works for the luxury brand. Of late, it has had a torrid time seeing, for the third time in 2020, comparable store sales in Europe, the Middle East, India and Africa declining 37%. The usual driver continues to be the Covid-19 pandemic, closing shops and lockdowns resulting in fewer tourists visiting its European stores. Currently 15% of its outlets remain closed during the third wave – and this number will inevitably rise with further lockdowns as the new strains take effect. One note of optimism was that digital sales jumped by 50%.

The de facto head of Samsung Electronics for the past six years has been sentenced to two years and six months in a bribery case which was a retrial of an earlier one involving the country’s former President Park Geun-hye, who was also jailed for bribery and corruption. It was alleged – and accepted by the court – that Lee Jae Yong “actively provided bribes and implicitly asked the president to use her power to help his smooth succession” at the head of Samsung. In a damming accusation of the way that the conglomerate is run, the court noted that “it is very unfortunate that Samsung, the country’s top company and proud global innovator, is repeatedly involved in crimes whenever there is a change in political power.” It found Lee guilty of bribery, embezzlement and concealment of criminal proceeds, worth about US$ 8 million. The company was accused of paying US$38 million to two non-profit foundations operated by Choi Soon-sil, a friend of the disgraced jailed president in exchange for political support – alleged to include backing for a controversial Samsung merger which paved the way for Lee to become eventual head of the conglomerate.

Notwithstanding the ongoing pandemic, and its continuing drag on  global economic life, Q4 proved a bonanza for JP Morgan, with profits 42.5% higher at US$ 12.1 billion, equating to US$ 3.79 per share or, excluding one-time items, $3.07 a share – well above the analysts’ forecast of $2.62 per share; the one-time item was the New York-based bank “releasing” US$ 1.9 billion  of funds it had set aside last year to cover potential loan losses caused by the coronavirus pandemic and subsequent recession; it still has over US 30 billion in provisions to weather any future credit crisis. The largest bank by assets in the US confirmed that these stellar figures were mainly attributable to the firm’s investment banking division which saw profits jump 82.0% to US$ 5.35 billion.

Having raised US$ 230 million from existing shareholders, the latest funding round indicates the value of UK-based Deliveroo could be as high as US$ 7.0 billion, as reports indicate that the food-delivery start-up could be contemplating an early IPO. The money raised will be utilised by Deliveroo “to continue to innovate, developing new tech tools to support restaurants, to provide riders with more work and to extend choice for customers, bringing them the food they love from more restaurants than ever before”. The seven-year old firm currently operates in twelve countries, including the UAE, UK, Australia and Singapore, and has more than 2k employees in offices around the world. Its network spans 140k restaurants and 110k riders globally.

There are indicators that Turkey is increasing its presence in the African continent, as it tries to curry favour with countries by doses of aid and trade. Over the past fifteen years, Turkish president, Recep Erdogan, has overseen the number of Turkish embassies in Africa increase from 12 to 42; there are 55 countries in the African Union. The Turkish administration recognises the economic and geopolitical importance of the continent and is now in the midst of a regional power struggle, centred on trade and influence. It seems that there are certain African countries which prefer to have a Turkish benefactor, rather than say a British/Portuguese/French occupation – and of late a growing Chinese influence. Most of its focus seems to be centred on the Horn of Africa, with Ethiopia, the continent’s second most populous country, being of particular interest; almost 42% of the US$ 6 billion that Turkish companies have invested in the area has gone there.

By Thursday, Australian shares had risen to their highest level since pre-Covid February 2020, driven by the feel-good factor of Joe Biden’s inauguration, boosting global sentiment, while local data showed a faster-than-expected recovery for the nation’s job market. The ASX  200 closed 0.8% higher on the day at 6,824 points, with the broader All Ordinaries index up by a similar margin to 7,107. Meanwhile, its economic life-line commodity, iron ore, closed on US$ 170, as there are signs that shipments are slowly rising, with 17 million tonnes being shipped the previous week. Other good economic news came with the December unemployment rate dropping 0.2% to 6.4% – slightly better than an earlier Reserve Bank forecast – as 50k people started a new job. This double whammy of positive news had the knock-on effect of pushing the Aussie dollar higher, to just under US$ 0.78, with every likelihood of moving slightly higher by the end of the month, assisted by a weaker greenback.

US markets also hit record highs, as Joe Biden was inaugurated as the 46th US President, with both the S&P 500 and Nasdaq hitting all-time highs on Wednesday. By the end of Thursday trading the S&P 500 was at 3,853 points, the Dow Jones 31,176 and NASDAQ Composite 13,531 points. The markets are potentially hopeful about the new President passing a proposed US$ 1.9 trillion stimulus package, which will enhance the bullish sentiment, and see markets rise even further. It is interesting to note that the Dow has gained 57% since Donald Trump first took office in January 2017 but this figure was less than the 72% hike recorded in Obama’s first four years in office.  

Last week saw a 151k applications for US state unemployment benefits to 961k. Despite the fall, the numbers are still on the high side, driven by the rising number of coronavirus cases and the relatively low uptake of the vaccine in the country. Continuing claims in state programmes, which monitors the number of citizens receiving ongoing jobless benefits, fell by 127k to just over five million. It will be interesting to see what the new Biden administration can do to improve the situation.

Despite warning of rising deficits, increased lockdowns – as corona virus continues almost unabated – and post Brexit problems, Fitch has maintained UK’s AA- debt rating and outlook at negative; the agency noted that the deficit had widened to 16.2% over the last year and that “the impact of the coronavirus pandemic on the UK economy and the resulting material deterioration in the public finances.” However, it was fairly bullish that its early rollout of Covid vaccines could see a “sustained recovery” in H1 and it raised its 2021 economic forecast from 4.1% to 5.0%, although the recent surge in virus cases could see a Q1 3.0% contraction.

With the advantages of being the first major economy to recover from Covid-19, having enforced strict virus containment measures and emergency relief for businesses, China ended the year, as the only major economy to have expanded in 2020. However, its economy – which grew at 2.3% – grew at its slowest annual pace in more than four decades; Q4’s growth was at a more respectable 6.5%, indicating that the economy is quickly returning to some form of normalcy, (a major improvement on Q1 2020’s 6.8% contraction). Latest monthly data sees the manufacturing sector reporting a 7.3% jump in industrial output, as coronavirus disruptions around the world fuelled demand for Chinese goods. The country’s export figures are even more impressive, considering the current strength of the yuan. This week saw the inauguration of Joe Biden and China cannot expect trade relations, which have deteriorated so much over the past four years of a Trump administration, to improve.

Recent action by  global hedge funds tend to point to a continued weakening of the greenback, with the likes of sterling and the euro heading into positive territory. The expected dollar’s downtrend will also see both the Australian and NZ dollars moving upwards, as hedge funds boost their US dollar net short positions. It is expected that if the pandemic impact lessens earlier in the year, it will benefit those currencies, particularly those from the emerging market countries, which are more leveraged to global growth. There are those who espouse that the greenback is on the rebound after a two-year slide, as US yields recently rose to a ten-month high. However, continuing low rates, high dollar valuations and a strong global economic recovery will see the US currency trade lower on the global stage.

The problem of accountability continues to bug world trade. Last week, questions were raised when Twitter permanently closed Donald Trump’s account and now there are questions on who has the final say when it comes to human rights. For example, this week Foreign Secretary Dominic Raab warned that UK companies would face fines, if they could not show that their supply chains were free from forced labour, particularly when it comes to the Uighur Muslims in the cotton fields of Xinjiang; this area provides 20% of all global cotton. The question is whether the courts, or the UK government, should decide what defines human rights violations and furthermore what action to take if a country is found to have “broken these rules”. For example, China is the UK’s fifth biggest trading partner, with annual trade of US$ 110 billion, and it would be economic suicide to cut ties on the grounds of human rights violations. Amendments to the Trade Bill currently going through Parliament would oblige the government to assess the human rights records of potential partners. There is already one amendment proposing to allow the High Court to declare a genocide in other countries and forcing the immediate cancellation of trade deals with said nations. If that were to happen, then other countries would quickly fill the breach and continue to applaud UK’s stance for taking the moral high ground, whilst filling their public coffers. Then what about several other countries that would not pass the test?

The ECB maintained both interest rates (at 0.5%) and the stimulus package unchanged, at US$ 2.3 trillion, and to run until March 2022 at the earliest, but did not rule out any possible future changes which may occur if the coronavirus cases continue to mount. To maintain liquidity in the system, it will keep long-term loans at minus 1.0% but some analysts reckon that this rate can only continue if the bloc’s governments ‘come to the party’ and offer support through fiscal policies. ECB President Christine Lagarde noted that, because of the pandemic, there had been “some downside risks to the short-term economic outlook,” but there is “an ample monetary stimulus remains essential” and the central bank stands ready to “adjust all its instruments”.  The EU hierarchy estimate that the eurozone economy slumped 7.8% in 2020 and that this year’s rebound will be 4.2%.

There is no doubt that Eurostar is struggling and could be in further financial trouble if no further investment is made. A report late last year noted that passenger numbers were 95% lower in November than they were just before the onset of the pandemic in March and the two trains an hour from London to Brussels/Paris then have been replaced by just two trains a day. No wonder then that some London business leaders have written to the government calling for financial support for the struggling rail firm, requesting, at least, government loans and relief from business rates. It seems that the firm, (60% owned by the French state rail firm SNCF and the balance, formerly owned by the UK government before being sold to private businesses for almost US$ 1.1 billion in 2015) has not yet been eligible for government-backed loans. Eurostar, launched in 1994 and having carried 190 million passengers over the past twenty-six years, has warned that “without additional funding from government there is a real risk to the survival of Eurostar”. Has the Eurostar met its Waterloo?