Tell Me What The Papers Say

Tell Me What The Papers Say!                                                                     20 May 2021

According to Valustrat, Dubai property prices rose 1.2%, month on month, but were still 6.5% lower, year on year. The consultancy noted that the property market has indeed bottomed out, as “capital values of residential homes commenced a growth trend” and that “clear improvements in capital values were observed in 96% of locations.” Monthly sales volumes were 16.9% higher, month on month, as off-plan house sales rose 30.1% and ready homes by 8.7%.

In what is traditionally a quiet period for the property sector, this year’s 29-day holy month of Ramadan saw property transactions totalling US$ 2.72 billion, with sales of 4.8k units; this beat the previous highest Ramadan period in 2015 when 3.9k units were transacted. The highest deal was found on Palm Jumeirah, where a villa went for US$ 29 million, whilst there were three other villas sold for more than US$ 19 million (AED 70 million) – two on the Palm and the other in Emirates Hills. As indicated in previous blogs, the secondary market demand for units has risen markedly, whilst there are some developers offering some ready to move in homes, with a ten-year payment plan and no interest.

Bloomberg has come around to forecasting that Dubai’s residential market is moving upwards and that the rally in property prices will continue, noting that “robust demand, peaking supply growth and long lead times for new projects could lead to a tighter than expected market over the next few years”.  As noted earlier, the emirate’s largest developer, Emaar, posted a 65% jump in Q1 villa sales, compared to the same period in 2020.

Nakheel’s latest launch is Murooj Al Furjan, a residential community of 418 villas, comprising 314 4 B/R and 104 5 B/R villas. Comprising two gated communities, the project, slated for completion in 2024, encompasses five million sq ft and will include several onsite sports and leisure facilities for residents. The Dubai-based developer has invested heavily in Al Furjan, spanning 560 hectares, where it already has built 1.7k villas and 2.8k apartments and a community with a population of 26k. The Dubai-based real estate announced that it sold out 217 villas worth US$ 218 million in just four hours today, as investors were “clamouring” to acquire homes at its new community.

Sobha Realty announced on Wednesday the launch of Waves – a 35-floor residential tower in The Waterfront District – and an integral part of the developer’s US$ 4.4 billion Sobha Hartland project – and scheduled for completion in Q3 2023. Located in Mohammed bin Rashid Al Maktoum City, the 592-apartment Waves is one of the 12 towers planned for its US$ 2.2 billion Waterfront District. Waves will comprise 1-2 B/R bedroom apartments and twelve retail units, with prices starting at US$ 272k. Sobha Hartland, launched in 2014, includes Greens, Creek Vistas, Creek Vistas Reservé, Gardenia Villas, Garden Houses, One Park Avenue and Forest Villas.

Rentals continued to decline in Dubai’s office market sector in Q1, attributable to continuing weak demand in the aftermath of lockdowns, restrictions and subdued consumer confidence. Consultancy Knight Frank noted an average 7.7% slide in Dubai rentals to US$ 281 per sq mt, with average prime office rents across Dubai falling slower at 4.2%, year-on-year, to US$ 586 per sq mt – its lowest level since Q3 2012. Vacancy rates also nudged higher to 24.3%, compared to 19.4% reported last summer. The report noted that there “are pockets of activity emerging, with the technology-media-telecoms sector being notably active, mirroring trends in other major global markets.” There is a glimmer of hope that the outlook could be brighter with the April UAE’s Purchasing Managers’ Index registering 52.7, its highest level since June 2019, indicating a welcome return of business confidence to the emirate.

Any hope of an early return to pre-pandemic tourist numbers have been dashed by numerous factors, including potential visitor numbers from their first and third source markets being severely curtailed because of the latest lockdown and travel restrictions in India and the UK, barring direct flights and requiring travellers from the UAE to hotel quarantine on their return. Despite these setbacks, there is still hope that the emirate will be able to attract 5.5 million visitors in 2021, well down on the 2019 figure of 16.7 million and in line with last year’s numbers. Some of the shortfall from traditional markets is expected to be filled by visitors from newer locations in Europe, Africa and the Commonwealth of Independent States (CIS).

This week saw the return of the Arabian Travel Market which attracted 1.3k exhibitors from sixty-two countries. It comes at a time when the local tourism sector is starting to return to some form of normalcy having been ravaged by the impact of Covid 19. Figures from the Dubai Media Office point to the fact that the number of visitors has increased tenfold in the nine months to March 2021, as hotel occupancy rates almost doubled to 64%, with the number of booked rooms 242% higher at 2.4 million. In Q1, the emirate recorded 1.26 million passengers and there have been recent moves to start removing Covid-19 restrictions; earlier in the week, Abu Dhabi lifted quarantine requirements for international visitors, whilst Dubai will allow vaccinated residents and visitors to attend concerts and community events.

At the event, Millennium Hotels outlined plans to double its regional property portfolio to 100 by 2025, with the UAE being the focus of its attention, with a further nine to be added by 2022. By that date, the company expects that it will have 20k keys, noting that “we see growth, we see potential and we see the curve is getting into [a] U-shape. It is picking up quite solidly … and we are fairly positive about the [UAE] market.” Latest data sees the UAE recording the world’s second highest hotel occupancy rate, at 54.7%, to China – last year, the country hosted 14.8 million guests.

HH Sheikh Mohammed bin Rashid has issued a decree dissolving a special tribunal that was formed in 2009 to settle disputes related to mortgage lenders Amlak Finance and Tamweel that protected their creditors, following the GFC. Any complaint that has already been reviewed by the Special Tribunal, and has not received a final judgment, will be referred to the concerned Court of First Instance at Dubai Courts. Amlak, along with a number of others, specialising in home mortgages, suffered because of mortgage defaults, when prices tanked following the 2008 crisis. Last year, Amlak Finance, 55% publicly owned and 45% by Emaar, tried to get creditors’ approval for a restructuring plan but failed, despite having gained 95% approval, when just one creditor abstained from signing the deal.

According to the federal Ministry of Economy, starting next month, foreign investors and entrepreneurs can fully own onshore companies in the UAE. The aims of the change in legislation are to boost the country’s competitive edge, facilitate doing business in Dubai and augment UAE’s appeal as an attractive destination for both foreign investors, entrepreneurs and talents. A recent report by Expat Insider 2021 ranked the UAE 18th in the world’s leading countries to live and work in; the top five positions went to Taiwan, Mexico, Costa Rica, Malaysia and Portugal.

Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed, launched ‘Dubai Next’ – a new digital crowdfunding platform for supporting entrepreneurs and start-ups, to boost positive competition, as well as encouraging new ideas that will stimulate local crowdfunding. He also wants to “empower a generation that is capable of innovating to succeed in a competitive commercial environment, thus reinforcing the fundamental role of SMEs in economic development so that the UAE can continue to stand as a model for youth empowerment.” There will be plenty of role models for the new SMEs to look up to, as Dubai is home to a number of global tech start-ups that have chosen to base their headquarters here due to its business-friendly legislation. They include messaging app Telegram, advertising technology company Media.net, Wrappup, the developer of an AI-based productivity app, acquired by US tech firm Voicera, and Emerging Markets Property Group – the parent company behind the Bayut and Dubizzle portals.

A UAE start-up, specialising in digital payment services, has managed to raise US$ 8 million in a new funding round, led by the local venture capital firm Global Ventures. Mamo, co-founded by ex-Google employees, Mohammad El Saadi, Asim Janjua and Imad Gharazeddine, will use the finance to expand its operations in the UAE and Saudi Arabia and also to support the transformation of the UAE and Mena countries into digital economies.

Alvarez & Marsal, administrators of NMC Health, has sent legal letters – before issuing claims – against the company’s former directors and pointedly to ex-auditor EY, noting that “these claims have the potential to generate significant recoveries for the estate,” and that “we consider that a meaningful estimate of dividend prospects for unsecured creditors cannot be made at this time”. The country’s biggest private healthcare company, founded in 1975 by BR Shetty, floated on the LSE in 2012 and was valued at US$ 12.1 billion in 2018. In late 2019, it was found that US$ 4.4 billion of previously undeclared debt had been concealed which was the beginning of the end for the Shetty empire.

Amlak Finance came out of the red in Q1 2021, posting a US$ 2 million profit after recording a net loss of US$ 38 million, over the same period in 2020, it had an annual 2020 deficit of US$ 119 million. Over the quarter, revenue dipped 12.7% to US$ 17 million, (excluding fair value losses on investment properties and gain on debt settlement). Operating expenses came in 16% lower at US$ 4.5 million and the finance company managed to repay US$ 19 million to financiers in the quarter. Amortisation for Q1, at US$ 9 million, was 45.4% higher compared to a year earlier, whilst in the first three months of the year, it managed to renegotiate an agreement with all the financiers that govern the new terms of its debt restructuring.

Damac Properties posted a Q1 loss of US$ 52 million, compared to a US$ 29 million deficit a year ago, as revenue almost halved to US$ 175 million down from US$ 335 million; the loss was the firm’s sixth straight quarterly loss, driven mainly by a supply overhang and ongoing price declines. Gross margins dipped because of lower revenue recognition – as projects are nearing completion – and higher selling and general administration expenses. However, the developer, founded by Hussein Sajwani, has reported a 52% hike in Q1 booked sales to US$ 302 million, as the Dubai real estate market gained further traction. The company has delivered over 33k units since its 2002 formation and has a similar number in the pipeline, 96% of which are in Dubai. Earlier in the week, Damac shares were trading at US$ 0.335, giving it a market cap of US$ 2.1 billion; the share value is 5.4% lower YTD and 72% lower than its 2017 peak but has almost doubled over the last twelve months.

Q1 saw Union Properties swing to a US$ 1.5 million profit, compared to a US$ 33 million loss a year earlier, attributable to lower finance costs, 42% lower at US$ 6 million, and the property market picking up. Direct costs fell 6% to US$ 211 million, with administrative and general expenses down 15% to US$ 7 million. The Dubai-based developer also gained US$ 2 million on the disposal of investment properties, (Q1 2020 a loss of US$ 5 million). Last year, it reached an agreement with Emirates NBD to restructure an outstanding debt of US$ 258 million and also divested a 40% stake in its subsidiary Dubai Autodrome for US$ 109 million.

Meanwhile, the emirate’s biggest listed property developer, Emaar Properties, posted an 8% hike in Q1 net profit to US$ 179 million, as it recorded a 12% revenue increase at US$ 3.3 billion. It booked Q1 sales of US$ 1.9 billion – 83% higher than a year earlier – with UAE sales accounting for 83% of the total. Having already built 74.5k units since its formation, it has 37k in the pipeline, of which 25.5k are in the UAE, and has a backlog totalling US$ 11.4 billion. Its two other companies posted healthy revenues, with Emaar Development and Emaar Malls up 26%. Profits at its Emaar Development arm grew 20% to US$ 211 million, whilst its Emaar Malls arm made a Q1 profit of US$ 84 million.

The bourse opened on Sunday 02 May for two days before the Eid Al Fitr holiday to reopen for a full week’s trading on 09 May; having gained 39 points (1.5%) the previous week, gained 87 points (3.3%), on the seven trading days to close on 2,751 by Thursday 20 May. Emaar Properties, US$ 0.04 higher the previous week, gained a further US$ 0.04 to close at US$ 1.10. Emirates NBD and Damac started the previous week on US$ 3.39 and US$ 0.34 and closed on US$ 3.50 and US$ 0.37. Thursday 20 May saw the first full week of a post-Ramadan market trading at a much improved 350 million shares, worth US$ 133 million, (compared to 76 million shares, at a value of US$ 28 million, on 06 May).

By Thursday, 20 May, Brent, US$ 0.29 (0.4%) lower the week ending 06 May, slipped a further US$ 2.95 (4.3%) to close on US$ 65.32. Gold, up US$ 44 (2.5%) the previous week, gained a further US$ 62 (3.4%) by Thursday 20 May to close on US$ 1,876.

Yesterday saw Bitcoin slump to below US$ 34k for the first time in three months, after China imposed fresh curbs on crypto-currencies, by banning banks from providing services related to crypto-currency transactions. This follows a 10% fall last week when Tesla said it would no longer accept the currency but It did recover by the end of the week, trading at US$ 40.6k. Bitcoin was not the only cryptocurrency to move lower with the likes of Ether and Dogecoin losing 22% and 24% respectively. Although crypto-currency trading has been illegal in China since 2019, people still trade but this week the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued a warning that there would be no protection if they were to incur any losses from crypto-currency investment transactions. However, when the likes of the FT reporting “new doubts among institutional fund managers over the future of crypto-currencies as an asset class”, and Elon Musk noting that “we are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel”, there must be doubts not of its long-term future but its actual fair value. No major government is going to sit back and see its currency take a back seat to a virtual newcomer. The latest selloff in digital currencies has seen market capitalisation of all cryptocurrencies back under US$ 2 trillion, 20% lower from its recent US$ 2.5 trillion record, whilst gold proved a temporary winner, gaining 6% over the past fortnight.

It is reported that Amazon is prepared to spend US$ 9.0 billion to buy the historic MGM Studios which would give the tech giant’s Prime streaming service access to a vast back catalogue. This was the second major deal in a matter of hours, after telecoms giant AT&T agreed to combine its WarnerMedia unit with Discovery in a deal to create a new streaming giant. Although WarnerMedia-owned HBO and HBO Max now have around 64 million global subscribers, it still has a long way to go to catch up with the likes of Netflix, which has 208 million subscribers, Disney+, which has more than 100 million and Discovery, with more than 88 million US homes.

Despite the lifting of most restrictions, UK’s High Street is still facing daunting problems with the latest news being that people visiting shops was down by 3%, juxtaposed with the same time a week earlier and that compared to the same May period two years ago, footfall overall was 28.4% lower. A further analysis of the readings shows that retail parks saw the biggest declines, with visitor numbers falling 5.4% week-on-week, visits to shopping centres fell 3.4% and the number of shoppers on the High Street was 1.6% lower; compared to May 2019, the numbers were all lower by 3%, 30% and 32% respectively. The news is just as gloomy for bars and restaurants which this week could finally see patrons inside the building; however, it is estimated that across the country, there are now 9.7% fewer restaurants and 19.4% less “casual dining” venues than there were pre-pandemic. It seems that the traditional pub has fared a little better, with the number of pubs serving food declining by 4.2%, whilst those only serving drinks down by 5.2%.

With the highest monthly growth rate since August 2002, UK March average house prices jumped 10.2% on the year to a record US$ 363k, as the housing boom continued unabated; a month earlier, the growth was at 9.2%; it seems that London posted the country’s lowest regional growth, at 3.7%, for the fourth month in a row; this was put down to a lack of foreign investors due to the country’s tight travel restrictions. On a regional basis, Wales, Scotland, England and N Ireland prices rose 11% to US$ 262k, 10.6% to US$ 236k, 10.2% to US$ 389k and 6.0% to US$ 211k respectively.  The recent boom in house prices has been put down to the government’s stamp duty break – introduced last July, and still running – and the Covid lockdowns that have now resulted in a pent-up demand for homes. Just like Dubai, apartment price increases were a lot less than houses, with the former only rising 5% with detached houses 11`% higher.

The seasonally adjusted Q1 GDP in the EU and the euro area decreased by 0.4% and 0.6% respectively, according to a flash estimate published by Eurostat, the statistical office of the EU; the previous quarter, the falls were 0.7% and 0.5%, but in Q3 the bounce back saw expansions of 11.7% and 12.5% respectively. (The US posted GDP growth in both the last two quarters of 1.1% in Q4 and 1.6% in Q1). Over the past two quarters, the 
number of employed persons, in both blocs, decreased by 0.3% in Q1 and 0.4% the previous quarter.

The EC is to propose a more unified tax system of taxing companies in the EU and other measures to adjust the bloc’s business taxation to put the system more in line with the modern world, where cross-border business, normally via the internet, is increasing in popularity. Next month, the OECD is planning to introduce unified worldwide rules and regulations on where – and how much – to tax large MNCs such as Amazon, Apple, Facebook, Google and Microsoft. It may prove difficult for the bloc to introducesuch a radical unified taxation model by 2023, as the current modus operandi sees the 27 EU countries currently having 27 different tax protocols. This agreement will be a forerunner of a new set of corporate tax rules for the EU members – “Business in Europe: Framework for Income Taxation” – which will see common taxation for all 27 countries, as well as allocation of profits for taxation at national rates between EU countries, according to a set formula, dependent on various factors. That is the plan, but reality may see a different ending! 

With US pandemic restrictions being lifted, there were 444k jobless claims in the country to a new pandemic low – a positive indicator that the job market is steadily improving. By the end of the week ending 15 May, jobless claims had dipped 34k. Despite this, the levels of claims are still significantly higher than pre-pandemic levels but with more Americans getting vaccinations, and returning to work, the situation will steadily improve but at a slower rate than many had forecast.

There was no surprise to see that the Serious Fraud Office is investigating Liberty Steel, a company enmeshed in the Greensill debacle. It seems that the probe centres around suspected fraudulent trading and money laundering. Despite the sterling efforts of its special adviser, David Cameron, the Australian banking company went belly up in March; its reliance on Greensill meant that Sanjeev Gupta’s business empire would be in trouble if anything untoward happened. Following its reporting on the Wirecard scandal last year, yet again the FT proved that it is the best investigative newspaper in the UK and has claimed that one of Mr Gupta’s companies had sent Greensill invoices for business it had supposedly done with four European metal companies. But those European companies told the newspaper they had not dealt with GFG., and the group saying that the invoices were for products it expected to perhaps sell in the future and that the financial arrangement was common for many of its clients. Tell Me What The Papers Say!

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