Another Day In Paradise

Another Day In Paradise?                                                                 08 April 2021

How could all the property experts get it so wrong predicting further doom and gloom for the Dubai property sector in 2021?  March saw a marked uptick in sales transactions which totalled 4,643, valued at US$ 3.0 billion, and undoubtedly the 22% month on month growth in transactions, and 47% in value, will continue the same trend into Q2 and for the rest of 2021. 101 Economics teaches that prices will head north when there is lack of supply and high demand – this is exactly what is happening in areas like The Meadows and other established locations in the emirate for villas, and in Palm Jumeirah for prime apartments. Interestingly, last month had the highest number of secondary/ready properties transacted in a single month since June 2015.

The DLD weekly real estate report ending 01 April noted that the value of real estate and properties transactions was US$ 1.93 billion, including 1,116 apartments/villas selling for a total of US$ 559 million, along with 103 plots for US$ 197 million. The total amount of mortgaged properties came to US$ 1.09 billion, half of which was for land mortgaged in Marsa Dubai; there were 83 properties granted between first-degree relatives, valued at US$ 53 million. Three apartments were the top-priced for the week – US$ 55 million in Palm Jumeirah, US$ 52 million in Marsa Dubai, and U Madinat Dubai Almelaheyah, US$ 51 million, in Burj Khalifa. The highest land value sold this week was for US$ 58 million in Hadaeq Sheikh Mohammed Bin Rashid. Most transactions were carried out at Hadaeq Sheikh Mohammed bin Rashid, (28 sales valued at US$ 61 million), followed by Nad Al Shiba Third, with 22 sales transactions worth US$ 15 million, and Al Hebiah Third, with 8 sales transactions worth US$ 7 million.

Colliers’ latest report indicates that Dubai’s property market is running low on inventory, as buyers currently outnumber sellers in popular areas of the emirate, resulting in Dubai property fast becoming a sellers’ market. Since the advent of Covid, the trend is for many stakeholders moving to bigger spaces or better communities, or both. Covid was a catalyst for some property owners having to sell their property, (either through losing their job or having their pay cut). Now many sellers are in a position to wait and see, waiting for the right price to be offered.

Since the September 2019 launch of the Dubai Supreme Committee for Real Estate Planning, new project launches have slowed down substantially, so that, according to Asteco, only 34k residential units were handed over last year. Most of this number were already work-in progress, in September 2019, but with time the pipeline will become more manageable as actual new launches slow. There is no doubt that equilibrium is returning to the market and as supply slows, property prices will inevitably move higher, also driven by historically low mortgage rates, enticing buyers to pay more as the lack of good property available becomes apparent; maybe gazumping is returning to the local market.

Binghatti Developers launched a US$ 55 million project in JVC, comprising 160 apartments, covering 300k sq ft. The Binghatti Mirage – its third development in that location – is scheduled for completion within twelve months. One 722 sq ft B/R apartment will be priced at US$ 132k, after a 30% discount in advance, while a 2 B/R apartment, with an area of ​​856 sq ft, will cost US$ 188k. According to Cavendish Maxwell, JVC saw 2020 rental declines for both apartments (down 16.1%) and villas by 3.1%.

Dubai Economy has joined forces with Amazon in a new initiative to assist  local start-ups and SMEs, who are DED Trader licence holders and interested in expanding their online footprint. The Amazon Sale University will provide new e-learning courses and also host a dedicated store front on Amazon.ae to showcase products offered by local traders. One of DED’s main aims is to accelerate the “growth of e-commerce initiatives and promote technology integration” within the local business community.

Having met all safety requirements issued by the General Civil Aviation Authority (GCAA), flydubai will resume 737 Max passenger service with the first flight today to Pakistan’s Sialkot. The Dubai carrier has fourteen Max aircraft currently grounded, of which  four  Max 8s and one Max 9 have got the go-ahead to fly, following a comprehensive twenty-month review. The remaining nine Max aircraft are expected to return to passenger service over the next two months, following extensive work to reactivate planes that have been grounded for two years. The carrier noted that the Max aircraft “will operate to a number of flydubai’s destinations over the coming weeks” and that passengers will be notified in advance of travel if their itinerary now includes a flight that is scheduled to be operated by a Max plane. Twelve countries, within the carrier’s network, have yet to clear the narrow-body jet’s return, including Russia and India. The Dubai-based airline has over 750 pilots, of which over 30% have completed the required additional training on the 737 Max, with the remaining 520 expected to complete the additional training by the end of the year.

Dubai’s largest fuel retailer, Emirates National Oil Company, is planning to invest US$ 68 million of its capex budget on digital technology to optimise operations and identify synergies within its businesses. Enoc has more than 11k employees in sixty markets and it expects to grow the number of its service stations by 41.9% to 193 this year. In 2019, it had launched Enoc Link, an on-demand fuel service initially only for commercial customers, and now expects to add new revenue streams from the launch of on-demand fuel retail. In February, it introduced its first sustainable service station at the Expo 2020 site – and the first in the region equipped with a wind turbine for generating power. Enoc has launched its Masar project, as part of its digital transformation plans, with the aim of integrating all of its divisions and providing a more focused service to customers.

Earlier in the week, HH Sheikh Mohammed bin Rashid Al Maktoum launched the Dubai Creative Economy Strategy, with the aim of doubling the emirate’s creative industries’ contribution to GDP to 5.0%, company numbers to 15k and the number of creators to 140k by 2025. The Ruler noted that design, content, culture and arts will be major drivers for Dubai’s future, but the concept also covers a wide range including the likes of publishing, writing, cinema, video, cultural heritage and artistic industries. To speed up the process, the legal and investment environment will be upgraded to spur growth of creative industries in Dubai and to enhance its attractiveness to international creators, investors and entrepreneurs.

The Dubai Ruler also approved the Emirates Development Bank (EDB) Strategy to provide a sizeable US$ 8.2 billion financial support to businesses and start-ups in a major step to drive the national economy, as a support mechanism for the recently launched US$ 82 billion “Operation 300bn”. This was introduced last month as a ten-year comprehensive strategy to more than double the industrial sector’s contribution to the country’s GDP, and to finance more than 13.5k SMEs and to create 25k jobs. The Dubai Ruler also noted that “we must adopt a distinctive vision that meets global trends and sustains development to maximise the industrial sector’s revenue and boost the broader economy”, as well as “The Emirates Development Bank Strategy presents a giant leap that will leverage the bank’s role as a key driver of the national economy. Providing effective financial solutions will support the role of SMEs as main players in shaping our national economy.”

This week saw the appointment of Khaled Mohamed Balama Al Tameemi as governor of the Central Bank of the UAE who takes over the role from Abdulhamid Saeed Alahmadi. At the same time, the central bank also decided to extend the Targeted Economic Support Scheme (Tess), the US$ 13.61 billion zero-cost funding programme, set up a year ago to help lenders maintain funding flows through the economy, following the onset of Covid-19, until year end.

Moving up four places, the UAE is now ranked 15th in the world (and the leader in the Arab region) in Kearney’s 2021 Foreign Direct Investment (FDI) Confidence Index. Not surprisingly, the report indicated a marked decline in overall optimism about the global economy over the year but noted that the UAE business environment demonstrated continued strengths, including government incentives for investors. It also pointed to the fact that investors are more cautious regarding FDI as they gear up for a long-haul economic recovery Only 57% of investors were optimistic about the three-year global economic outlook – compared to 72% in last year’s survey. China, the UAE and Brazil are the only three emerging markets on this year’s Index, with China remaining the highest-ranked emerging market, as has been the case all this century.

The International Monetary Fund revised upward the UAE economic growth forecast for 2021, thanks to massive vaccination efforts which will strengthen recovery in H2. The UAE is now the second most vaccinated country in the world after Israel. The world body more than doubled its previous forecast of 1.3% to 3.1%, with growth softening to 2.6% in 2022. (However, the IMF often seem to get their forecast so wrong and no doubt the UAE economy will grow at an even faster rate next year). For the MENA region, the Fund revised its 2021 growth outlook from 3.2% to 4.0%.

The Ministry of Economy announced a price reduction on 30k food items during Ramadan. Discounts on items such as rice, flour, sugar, meat, fish and juices will range from 25% – 75%, across 900 national outlets. The ministry will also clamp down on unfair price increases during the holy month and will carry out 420 inspections to ensure grocery stores and businesses follow the rule. Government officials have met with representatives of fruit and vegetable markets in Abu Dhabi and Dubai to ensure enough food will be available during the Holy Month. It is estimated that on a daily basis, Dubai imports around 17k tonnes of fruit and vegetables, whilst the Abu Dhabi total is nearly 5k tonnes.

Dubai Internet City will be the regional headquarters for a company rated as the most valuable start-up in the US. Stripe, the online payments company, will help all its internet-based customers accept payments, make pay-outs and manage the money-side of the business. The UAE digital payment transactions have doubled over the past two years to US$ 18.5 billion, with a further 54% increase to US$ 28.5 billion expected by the end of 2022.

Two DFM entities were in the news this week. With Meraas now owning over 90% of the shares in the theme park operator, DXB Entertainments, the company will buy out the remaining equity holders by paying them US$ 0.022 per share, so that the government-owned entity can assume 100% ownership. Meanwhile, Deyaar has decided not to pursue a capital reduction to cancel US$ 417 million of accumulated losses; no reason has been given for this change. The DFM also announced a plan to launch new equity futures contracts on individual stocks of three leading listed companies – Aramex, Air Arabia and Emirates Integrated Telecommunications Company (DU) – in line with its strategy to diversify investment opportunities. It is like the inaugural equity futures contracts launched last October on stocks of five listed companies – Emaar Properties, Dubai Islamic Bank, Emirates NBD, Emaar Development and Emaar Malls.

Later in the month, the DFM will see its first IPO for some time, as Tristar will be offering shares at between US$ 0.60 to US$ 0.74 which would value the Dubai-based fuel distributor at up to US$ 880 million. It is expected that 20% of the shares will be offered to the public, through the sale of new shares, while the current shareholders could divest a further 4% onto the market, through a secondary offering. The business currently has three shareholders – Kuwait-based logistics group Agility, (65%), Gulf Investment Corporation (20%) and an investment vehicle owned by chief executive, Eugene Mayne (15%). Last year, Trisatr, with a fleet of more than 2k lorries and 35 maritime vehicles, posted a US$ 103 million EBITDA on revenue of US$ 453 million.

The bourse opened on Sunday 04 April and, having gained 62 points (2.5%) the previous week, was up 25 points (1.0%) to close on 2,583 by Thursday 08 April. Emaar Properties, US$ 0.03 higher the previous week, moved up another US$ 0.03 to close at US$ 1.00. Emirates NBD and Damac started the week on US$ 3.12 and US$ 0.32 and closed on US$ 3.17 and US$ 0.33. Thursday 08 April saw the market trading at 172 million shares, worth US$ 45 million, (compared to 69 million shares, at a value of US$ 36 million, on 01 April).

By Thursday, 08 April, Brent, US$ 6.83 (8.6%) lower the previous fortnight, lost a little more ground, shedding US$ 1.23 (1.9%) in this week’s trading, to close on US$ 63.42. Gold, up US$ 3 (0.1%) the previous week, was US$ 26 (1.5%) higher, by Thursday 08 April, to close on US$ 1,756.

IATA estimates that ME passenger demand has fallen back to levels last seen in 1998, noting that last year was the worst in the industry’s history. The global body indicated that, in 2020, passenger demand slumped by 72%, allied with a 63% fall in capacity, with cargo only declining 10%. It once again warned that some carriers may face bankruptcy and that to date losses registered total more than US$ 7 billion and that there must be more collaboration between the industry and various governments to best facilitate global economic recovery.

Despite a shortage of chips, Tesla delivered a record 184.8k electric vehicles in Q1, beating analysts’ expectations of 168k; this is well on its way to meet Elon Musk’s target of 750k for the year. Tesla announced that it would be progressing to full capacity at its Chinese plant. Despite this positive news, Tesla’s shares, which have skyrocketed by more than  540% over the past twelve months, were 1% lower on the day. Q1 sales were dominated by its cheaper models ‘3’ (from US$ 33.7k) and ‘Y’ (from US$ 45.7k), with its two more expensive models, ‘S’ and ‘Y’, (from US$ 75k), accounting for just 1% of Q1 turnover. The company confirmed it was still in the “early stages” of ramping up production of updated versions of both the more expensive models. Tesla was the biggest electric car manufacturer in 2020, accounting for 15.6% of the global production of 3.2 million. However, Monday was another day and, after digesting the news of record quarterly production, investors pushed Tesla shares 8% higher in pre-market trading on Monday.

LG Electronics is to close its loss-making smartphone business following six years of continual losses, totalling US$ 4.5 billion. Only eight years ago, it was the world’s third largest smartphone maker but has trailed the leading two players, Samsung and Apple, not helped by its own hardware and software issues; last year it shipped 28 million phones, compared with Samsung’s 256 million; it is estimated that it has a 2% global market share. Noting that the mobile phone market had become “incredibly competitive”, the South Korean conglomerate has said that its “strategic decision to exit the incredibly competitive mobile phone sector will enable the company to focus resources in growth areas such as electric vehicle components”. The smartphone business is the smallest of LG’s five divisions, accounting for just 7.4% of revenue.

The UK High Street cannot wait for next Monday – the day when lockdown restrictions are finally lifted and, driven by pent up demand, analysts are expecting that there will be a massive 48% hike in “bricks and mortar” sales. A study by Springboard noted that between the first and last weeks of March, the decline in shopping centre footfall moved up from -69% to -62.5%, compared with March 2020, whilst a -29.8% annual drop in footfall at retail parks shrank to -14.8% just before the Easter weekend. Over that four-day holiday period, footfall in. the country’s major cities was three times greater than for the same period a year earlier, and for UK retail destinations, footfall has increased from week to week for ten of the past eleven weeks, despite all but non-essential stores being closed. A more telling statistic from the latest data from the PwC’s Consumer Sentiment Index is that consumer confidence is now at its highest level since the tracking of the data began in 2008, with figures showing there are consumers with more disposable income and “a pent up demand to spend after a year of lockdown restrictions”.

It is estimated that Penguin Random House has claimed US$ 1.4 million under the UK government’s furlough scheme and now it has commented that it will not be repaying any of this back to the government despite strong sales in lockdown; revenues rose by 4.6% to US$ 5.3 million last year but UK’s biggest publisher, owned by German firm Bertelsmann, does not publish its UK profits separately, but they are thought to have soared. A spokesperson said: “We have used the government’s furlough scheme for its intended purpose: to protect jobs during this extraordinary time.” To date, the furlough scheme has cost the UK taxpayer US$ 78 billion.

The collapsed fashion chain Peacocks, previously owned by Edinburgh Woollen Mills, has been bought out of administration, by an international consortium, led by Peacocks’ former chief operating officer, Steve Simpson. It is being supported by EWM, a private investment group controlled by the Day family, which is owed money by Peacocks. If they receive the support of stakeholders, including partners, suppliers and landlords, the Peacocks’ management team is hoping to reopen 200 of its 400 shops, and retain all 1.85k store staff, along with more than 150 in head office and support. Last year, a similar deal was agreed with EWM and Bonmarche brands; as well as EWM also selling its Jaeger brand to M&S which will be run as an online-only business.

CVC Capital Partners, a UK private equity fund, has placed a buyout offer for troubled embattled Japanese conglomerate Toshiba, in a deal that could be as high as US$ 20 billion. Shares jumped almost 20% on Toshiba’s US-listed shares. The company has been involved in several scandals in recent years, including false accounting, (by overstating its profits for six years to 2015), and huge losses linked to its US nuclear unit, which resulted in an enforced sale of its profit-making chip sector to cover the deficit. Last year, it sold its final stake in the personal computer maker Dynabook, but if the deal goes through – it still needs the green light from regulators, including the Japanese government – it will allow the company to focus on renewable energy and other core businesses.

It took Credit Suisse little time to dismiss two key executives, chief risk officer, Lara Warner and its investment banking chief, Brian Chin, and to decide to cut bonuses in the fallout from two major business relationships. The first involved Greensill Capital, which filed for insolvency last week, and was a key financial backer of Liberty Steel owner, GFG Alliance. The other casualty was hedge fund Archegos which also imploded with major losses. Credit Suisse said it expects to make a Q1 US$ 960 million loss.  The Swiss bank also warned of a US$ 4.7 billion Archegos’ loss but noted that it had yet to calculate the cost of its involvement with Greensill Capital, but that could easily run into billions as well. It had acted as one of several lenders as prime broker for Archegos which collapsed after “bets” made on stocks unravelled including entertainment giant Viacom. The bank was one of the last to exit when these shares crashed from US$ 100, (earlier in March), to just over US$ 40. Credit Suisse confirmed it had launched investigations into both matters, with chief executive, Thomas Gottstein noting that “serious lessons will be learned.”

The recent rally in digital assets appears to have no ending and is no longer the domain of just Bitcoin. Ethereum, the world’s second largest cryptocurrency and rising 6.2% last Friday is now worth US$ 2.144k, having already tripled in the first three months of 2021. Ethereum was trading at US$ 150 in April 2020. The market has been boosted by major institutional investment, as well as increased adoption by retailers and payment platforms, including Visa which recently started using its network to settle cryptocurrency transactions.

The Australian Securities and Investments Commission is suing Westpac over its sale of consumer credit insurance in 2015 to almost 400 customers. ASIC alleges that the bank mis-sold CCI with credit cards and other credit lines to almost 400 customers “who had not agreed to buy the policies” for several months back in 2015. This insurance is usually optional and provides cover for consumers if they are unable to meet their minimum loan repayments due to unemployment, sickness or injury. A 2019 report by ASIC, covering eleven banks, found CCI was giving consumers “extremely poor value for money” and that they were only receiving 11 cents for every dollar they spent on CCI premiums linked with their credit cards – and only 19 cents for every dollar on all CCI products.

The Consumer Action Law Centre noted that the practice of selling people insurance, that they did not need, had been “widespread” and targeted consumers at the vulnerable “pressure dynamic” point of sale. It concluded that “the salesperson effectively adds on junk,” and “the problems with junk insurance were industry wide. It was a rort and everyone was in on it”. To date, ASIC has “recovered” US$ 191 million for 580k consumers from eleven banks, equating to an average of US$ 185 for each consumer. If any company had been found stealing so much money, there would be executives serving time but it seems that the law does not apply to the Australian banking sector.

One positive sign for the Australian economy is that job vacancies are rising, indicating there is a growing demand for labour and positions are not being filled. February job vacancies surgied, with 289k vacancies – 13% higher than three months earlier and 90% of the total in the private sector. With such figures, some analysts are looking at a 5% unemployment rate by July, particularly since the government is scaling back on JobSeeker unemployment payments so that it may encourage those at the lower end pf the payment schedule to seek full-time paid work, as opposed to living on a relatively comfortable JobSeeker pay-out.  There is no doubt that there are clear labour shortages in some industries, and with job vacancies rising, there is an obvious growing demand for labour for positions that are not being filled. The construction sector is an obvious example – in February 2020, there were 16.6k job vacancies but that number halved to 8.3k in May 2020 when the lockdowns were put in place. One obstacle to the favourable employment prospects is vaccine and the disappointing figures – at the beginning of the year, Prime Minister Scott Morrison hoped to have four million doses of the vaccine administered by the end of March; his woeful forecast was well out, with only 670k doses administered by the end of last month. Other potential drag factors include ongoing trade tensions with China, further possible disruptions to global trade and the booming Australian property market that could see regulators stepping in to curb bank lending.

With the biggest gains seen since August, March witnessed a surge in US hiring, with 900k jobs being added in the month, as the vaccination program gained traction and restrictions easing led to the mass opening of restaurants, bars, construction sites and schools. Accordingly, although the unemployment rate eased 0.2% to 6.0%, it is only a year ago that the country lost more than twenty million jobs, at the onset of the pandemic; full employment will return within eighteen months The current estimate sees a 6.0% growth rate, driven by a strong rebound later this year, as families emerge from lockdowns with pent-up demand and in many cases, savings put away during the pandemic. Despite the number of Americans claiming unemployment benefits unexpectedly rising by 16k to a seasonally adjusted 744k for the week ending 03 April, there is no doubt that labour market conditions are rapidly improving, as the country’s economy reopens, vaccination programs increase, and the various stimulus packages take effect.  However, there is still some way to go as the US employment figures are still 8.4 million shy of the February 2020 peak.

As restrictions eased, Chancellor Rishi Sunak has announced a government-backed loan scheme to help companies, as the economy reopens. The loans, ranging from US$ 35k to US$ 13.9 million, (GBP 10 million), will be 80% guaranteed by the government and will aim to help companies restart trading. Administered by the British Business Bank, it will run until the end of the year and interest rates will be capped at what seems to a rather high 14.99%. To date, it is estimated that its emergency loans had supported about US$ 105 billion of financing.

US Treasury Secretary Janet Yellen confirmed that the US is working with G20 countries to agree on a global corporate minimum tax rate to end a “30-year race to the bottom on corporate tax rates”. In the absence of a global minimum, the US will always be struggling against other economies with lower rates so that is probably why the Biden administration is leading the negotiations to level ‘the tax playing field.’ It appears that the US would use its own tax legislation to prevent companies from shifting profits or residency to tax-haven countries and would encourage other major economies to do the same. Ms Yellen’s take on the problem is not shared by the World Bank supremo, David Malpass who was against such a high tax rate of 21% for companies and indicated that such high rates would hinder poor countries’ ability to attract investment. Whilst the EC supported the idea, it did not comment on the rate, whilst some countries, including Ireland, expressed reservations about the US proposal. Recently, the OECD held discussions that focused on a minimum corporate tax rate of 12.5%, whilst the average corporate tax rate globally is about 24%, with Europe having the lowest regional rate at around 20%.

Every three months, the IMF seems always to amend previous quarters and this month is no exception. This time it is forecasting a stronger economic recovery this year and next and has marginally upped the UK’s growth to 5.3% and 5.1% in 2022, after a 9.9% contraction last year. Despite this, the UK remains ahead of just one of the G7 countries, Italy, and will only return to pre-pandemic levels only by the end of 2022. On a global scale, two year forecasts are at 6.0% (up from October’s 5.2%) and 4.4%, with the caveat that recoveries are diverging dangerously within and between countries. The global body notes that countries likely to perform less than the global average are those with slower vaccine rollouts, more limited support from economic policy, and those more reliant on tourism. Many emerging and developing economies are forecast not to return to pre 2020 economic levels, although China has already returned to pre-pandemic levels of economic activity. Over the period 2020 – 2022, cumulative losses in income per person are forecast at 11% for the developed world and 20% for other countries. The report notes that people counted as extremely poor are likely to have increased by 95 million in 2020, with a rise of 80 million in the number who are undernourished. Another Day In Paradise?

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