This Time, Next Year

This Time Next Year                                                                                03 June 2021

State news agency Wam indicated that four out of the seven emirates, (Dubai, Abu Dhabi, Sharjah and Ajman), recorded US$ 18.5 billion of real estate transactions in Q1 – a sure indicator that the UAE property market has started to bounce back, after more than six years trapped in a bear market. There had been signs in late 2019 that a recovery was on its way, but this was derailed by the onset of Covid-19. Unsurprisingly, Dubai and Abu Dhabi dominated the sector, accounting for 86% of the total, with sales of US$ 16.1 billion. Dubai recorded 5.8k transactions, valued at US$ 13.0 billion, with Abu Dhabi’s 3.8k deals, worth US$ 3.1 billion.

Latest May figures from Property Monitor detail the residential sales price per sq ft for various locations in Dubai. The leading five areas for villas were Palm Jumeirah, MBR City, Dubai Hills, Jumeirah Islands and Emirates Living with values of US$ 577, US$ 403, US$ 306, US$ 300 and US$ 272. For apartments, the leading five locations were City Walk, Dubai Creek Harbour, MBR City, Downtown Dubai and The Hills, with values of US$ 399, US$ 392, US$ 370, US$ 368 and US$ 354. For rentals, the top three areas for villas were Jumeirah Golf Estate (US$ 86k), Jumeirah Island (US$ 74k) and Emirates Living (US$ 63k); for apartments, the highest rentals were found in City Walk, Palm Jumeirah and The Hills with figures of US$ 40k, US$ 38k and US$ 34k. In May, the three areas, with the largest increase in prices, were Palm Jumeirah, Jumeirah Island and Jumeirah Golf Estates, with rises of 5.65%, 5.47% and 4.89%. Apartment prices rises were lower, with the three leading locations being JLT, Dubai Marina and JBR, with increases of 3.86%, 3.76% and 3.74%.

For the week ending 03 June, the DLD confirmed that the value of residential property transactions totalled US$ 1.216 billion, of which US$ 945 million were for existing properties and the balance for off-plan. Mortgaged properties for the week totalled US$ 1.262 billion, with properties granted between first-degree relatives totalling US$ 135 million.

Founded just eighteen months ago, Stake has raised US$ 4 million in an initial funding round to expand its operations by scaling and introducing new products and features, boosting marketing and expanding its current fifteen-man workforce. The Dubai-based real estate crowdfunding platform, based in DIFC’s Fintech Hive, allows users to browse through pre-vetted selections of properties and invest from as little as US$ 545. Its current property portfolio includes ready units in Downtown Dubai and Dubai Marina, with profits distributed from rental income every month. The firm is looking at expansions into Saudi Arabia and the UK. To date, the property crowd funding platform has attracted more than 4k registered users and achieved 30% increases in sales every month.

There is no doubt that Dubai Coin exists, having allegedly been launched by a UAE-based company called Arabianchain Technology but it is definitely not the official cryptocurrency of the emirate, as the government has come out to confirm that the website was, in fact, a phishing scam. Even the Dubai Silicon Oasis company has denied any association and that “this website, dub-pay.com/en/ is fake and [a] scam. Please be careful.”  It seems that a team of scamsters set up a website to phish data and money out of unsuspecting crypto investors who thought they were dealing with an official agency who had offered to exchange their “official” dirhams for DubaiCoins. It seems that recently its value had jumped almost sevenfold to US$ 1.13 and was touted to replace traditional cash and work for local online transactions.

Following instructions from Sheikh Hamdan bin Mohammed al Maktoum, Dubai Industries & Exports has been given the mandate to attract more domestic and foreign investment into the emirate’s industrial sector. The Crown Prince directed that the agency develop the emirate’s industrial sector and consolidate efforts to make it a centre for industries of the future. The newly named entity, formerly known as Dubai Exports, will oversee efforts to attract more domestic and foreign investment into Dubai’s industrial sector, in line with the goals of the Dubai Industrial Strategy 2030 and ‘Operation 300bn.’ Its reach has recently been extended to reflect the increasing emphasis on industrialisation in Dubai and the urgent requirement to synchronise the various stakeholders on policies, initiatives and services for industrial development and advancing manufacturing exports.

It seems hard to believe that Dubai International was the world’s busiest airport for international flights in May. According to aviation intelligence firm, the Official Airline Guide, it posted almost 1.9 million scheduled seats, well ahead of second place, Istanbul, with 1.3 million, followed by Doha, Amsterdam and Frankfurt. Two years earlier, in May 2019, London Heathrow claimed top position but has now slipped to seventh in the ranking. Dubai was also on the list for the top ten busiest international routes, with Dubai to Riyadh coming in at eighth and Cairo to Dubai at tenth. According to OAG, the busiest route for international travel in May was from Russia to Ukraine, Moscow to Simferopol Ukraine (285k passengers) and the return journey (197k travellers) filled the top two places, followed by Orlando to San Juan Puerto Rico and Cairo to Jeddah.

Petrol prices moved higher in June, as the UAE Fuel Price Follow-up Committee announced new monthly prices, effective from Tuesday 01 June. Special 95 will retail US$ 0.025 (4.1%) higher at US$ 0.619, whilst diesel will be US$ 0.036 (6.0%) dearer at US$ 0.627 per litre.  This is the fourth straight month that Special 95 has edged higher, as at 01 January, it was retailing at US$ 0.578.

The Central Bank of the UAE reported that foreign assets, at the end of Q1, had grown 1.1% to US$ 106.9 billion, attributed to a US$ 23.4 billion increase in foreign securities and a 25.7% rise in other foreign assets to US$ 2.5 billion; there was a US$ 24.7 billion, (26.1%), fall in current account balances and deposits with banks abroad. Money Supply M1, (Currency in Circulation outside Banks (Currency Issued – Cash at banks) plus Monetary Deposits) rose 7.1% and 18.4%, on a quarterly and an annual basis, to US$ 175.0 billion. Money Supply M2, (M1 plus Quasi Monetary Deposits (Resident Time and Savings Deposits in Dirham, plus Resident Deposits in Foreign Currencies)), rose 0.6% and 2.2%, on a quarterly and an annual basis, to US$ 405.3 billion. M2 is often seen to be the best sign pointing to the availability of liquidity in the economy.

The report also commented on the Q1 performance of the Dubai Financial Market. The Index grew by 9.2%, with a market cap of US$ 96.4 billion at 31 March. Quarterly Traded Value was 4.8% higher at US$ 4.2 billion but the DFM Index lost 14.1% on an annual basis.

The bourse opened on Sunday 30 May, 191 points up (7.3%) the previous four weeks, gained a further 8 points, to close on 2,824 by Thursday 03 June. Emaar Properties, US$ 0.08 higher the previous four weeks, remained flat to close at US$ 1.10. Emirates NBD and Damac started the previous week on US$ 3.68 and US$ 0.38 and closed at US$ 3.76 and US$ 0.38. For the month of May, the bourse had opened on 2,625 and, having closed the month on 2,798, was 173 points (6.6%) to the good. Emaar traded higher from its 01 May 2021 opening figure of US$ 1.02 – up US$ 0.06 – to close May on US$ 1.08. Two other bellwether stocks, Emirates NBD and Damac, started the month on US$ 3.27 and US$ 0.32 and both closed higher on 31 May on US$ 3.76 and US$ 0.37 respectively.

By Thursday, 03 June, Brent, US$ 4.32 (6.6%) higher the previous week gained US$ 1.58 (2.3%) to close on US$ 71.22. Gold, up US$ 124 (6.8%) the previous four weeks, gained a further US$ 18 (1.0%) by Thursday 03 June to close on US$ 1,894. Brent started the month on US$ 67.25 and gained US$ 2.14 (3.2%) during May to close on US$ 69.39. Meanwhile, the yellow metal had a stellar month, gaining US$ 136 (7.7%) in May, having started on US$ 1,769 to close on 31 May at US$ 1,905.

At a twenty-minute meeting on Tuesday, the shortest on record, Opec+ agreed to stick to the existing pace of gradually easing supply curbs through July. In April, it had decided to add 2.1 million bpd of supply to the market over the three months to July, ahead of an expected demand increase, as lockdowns were eased, offset somewhat by Iran’s supply moving higher; if the US lifts the sanctions on the country, it could add 1.2 million bpd to the global daily total. Benchmark Brent crude hit $71 a barrel, its highest in fifteen months, on Tuesday.

With certain shareholders, (along with outside pressure groups), becoming more vocal and powerful, and oil giants becoming more attuned to a future of green energy, Total has decided to be known as TotalEnergies, as it shifts some of its focus towards renewable energy sources.  Shareholders in the world’s fourth biggest privately owned oil and gas provider approved the firm’s environmental goals, with the 2050 target of being carbon neutral by then; this will see the French energy company investing in more solar and wind power projects. Other petro giants are also being hounded by different stakeholders, including Royal Dutch Shell and Exxon, with the former being ordered by a Dutch court to cut its emissions more quickly than it had planned.  Meanwhile, the US oil firm saw two board members being ousted by a vote from a small hedge fund investor, to alter the firm’s stance on climate change. Analysts see Total as one of the leading “green energy” companies, along with BP but behind Eni and above Shell. They are well ahead of their US counterparts, when it comes to some sort of compliance in line with the 2015 Paris Agreement.

Last month, the International Energy Agency surprised the energy market by suggesting fossil fuel production needed to slow down much more quickly than many had been espousing. The IEA noted that if the world wanted to reach net zero carbon emissions by 2050, there could be no new investment in fossil fuel projects after this year. The knock-on impact of this for major producers is immense, as it is inevitable that fossil fuel reserves will have to remain unexploited in the ground if these carbon emission targets are to be met.

On Wednesday, shares of US cinema chain AMC Entertainment jumped 95.2% to US$ 62.55, having started 2021 on just US$ 2.12; at one time, its YTD value had surged over 3,000%, with a market cap of US$ 33 billion, many times higher than its US$ 217 million book value at the end of last December. It closed today, 03 June, on US$ 51.34.  It is more complexing to note that the book value of the company, with debts of more than US$ 5 billion, sees each share valued at more than negative US$ 5. The company also managed to sell 11.55 million shares, and raise US$ 587 million, for “substantially strengthening and improving AMC’s balance sheet,” and “providing valuable flexibility to respond to potential challenges and capitalise on attractive opportunities in the future.”  This brings the total of new equity introduced in Q1 to US$ 1.246 billion. In March, it was estimated that more than 3.2 million individuals owned shares in AMC, now the latest so-called meme stock to rattle and confound the US markets and regulators.

There is every chance that the RBA will inject more stimulus – maybe US$ 75 billion in the next three years – to further boost economic recovery, at a time when rates are expected to hover around zero for at least the next two years. The Reserve Bank has hinted it may inject more stimulus into Australia’s economy to super-charge its recovery from Covid-19, while maintaining interest rates near zero. The bank’s main objective seems to be increasing the supply of money flowing in the country – by maintaining borrowing costs low and boosting economic activity. This despite Australia’s recovery being stronger than expected and an indicator that the bank does not want to undershoot and to do anything to ensure that this continues, and that the country meets its GDP growth forecasts of 4.75% and 3.5% over the next two years.

The RBA is also closely “monitoring trends in housing borrowing carefully and it is important that lending standards are maintained”. There is no doubt that low rates are pushing realty prices higher, but the bank’s current opinion is that rate hikes are unlikely to occur “until 2024 at the earliest”. The RBA will be praying that come that date, inflation levels would have risen from 1.1% to as high as 3.0% and that the unemployment rate had dipped below the 4% mark. There are some analysts who estimate that this will occur a year earlier by 2023 because of the better than expected economic recovery to date.

Meanwhile, Australia’s property boom continues unabated, with May average prices moving 2.2% higher on the month and more than 10% since the onset of the pandemic; capital city prices, at 2.3%, were marginally higher than regional sales at 2.0%. Hobart (3.2%) and Sydney (3.0%) had the strongest monthly price growth levels. Over the previous twelve months, Darwin, Hobart and Canberra recorded thebiggest growths at 20.3%, 16.5% and 15.6%, with regional areas posting higher price increases than the capitals last month at 15.2% to 9.4%. The main driver for this sudden jump in prices is that there is a lack of properties for sale relative to buyers. If you own investment property down under, the message would be to hold on to it for the rest of 2021but by early next year, the supply/demand balance will move to some form of equilibrium before there is more supply available to meet the falling demand. Prices will then flatten and start to move into negative territory and, at the same time, rates will move north, with the government getting involved with property-related tax amendments.

Thursday saw Australian shares climb to a record high for the second day in a row, with the ASX 200 closing on 7,260 points, driven by optimism over the nation’s economic recovery and expectations that stimulus and low interest rates will persist for the immediate future; oil and gas shares were the big winners after oil prices surged to a 15-month high. Since April  2020, retail sales have jumped by 25% and it is estimated that, last April, consumers spent over US$ 24.0  billion as revenue was 1.1% higher, month on month. More of the same is expected in future months because the economy has been buoyed by an improving labour market, high levels of confidence and a large pool of pent-up savings. Other good news included Australia’s trade surplus jumping to US$ 6.15 billion, 37.7% higher, month on month, as exports increased 3.0% to US$ 30.39 billion and imports declined by the same percentage to US$ 24.27 billion. The RBA’s commodity price index rose 5.8% in May, with prices for iron ore, (now at US$ 209 per tonne), gold, LNG and coking coal all heading north.

UK petrol prices have climbed US$0.32 a litre over the past twelve months to US$ 1.83 – its highest level in two years; last May, they had sunk to US$ 1.51, as strict travel restrictions were in place. May was the seventh consecutive month that prices have risen, and it seems inevitable that this trend will continue in to Q3. There seems to be a disconnect to what the actual pump price should be and it does appear that retailers are adding a little more (perhaps US$ 0.028 a litre) to compensate for Covid-related losses when car usage was curtailed. One impact that Covid has had on the dynamics of fuel retailing is that supermarkets have taken a greater market share, where fuel prices can be as much as US$ 0.056 per litre lower.

The ECB target inflation level of 2.0% was breached in May, driven by a recent, marked increase in energy prices, at the same time economic activity in the eurozone had a mini bounce with lockdown restrictions being eased in many member states. Ever since the GFC, the worry about inflation was that it was too low – now it seems that the future concern could be that it will become too high – and certainly will be above the 2% level for the rest of 2021.

Apart from the economic impact of rising energy prices, other factors are in play including a surge in travel and hospitality, pent up demand for consumer goods, supply chain disruptions, (seeing manufacturers having to pass on price increases to customers), and rising commodity prices. Finally, the massive stimulus implemented by the ECB could easily lead to substantially higher inflation. It is not so long ago that the oil prices and inflation were presenting different concerns – certain grades of oil were priced at minus US$ 40 per barrel just over a year ago and for five months until December 2020, EU inflation was below zero.

UK Inflation is also edging higher and, although rising from 0.7% in April to 1.5% in May, it is still below the Bank of England’s target. In the United States, the inflation measure used by the Federal Reserve was 3.6% last month, way above its 2.0% target. The same reasons  that see EU inflation beginning to rise apply elsewhere. One has to agree with Sandy Haldane, the BoE’s chief economist, who noted that there was a “tangible risk that inflation proves more difficult to tame” than the financial markets were expecting.

UK house prices jumped at an annual 10.9% in May – its highest level in seven years, – as the average value rose to US$ 344k. The “race for space”, brought on by the impact of Covid-19, continues as buyers look for larger homes and properties with gardens. In April last year, housing transactions totalled 42k, more than quadrupling to 183k in March 2021, also attributable to historically low mortgage rates and the continuing “stamp duty holiday” due to close at the end of next month.

The OECD’s latest estimate sees the UK’s economic recovery from the pandemic being stronger than previously forecast in March – now upgraded to a 7.2% growth from its 5.1% estimate three months ago; the latest figures see the UK outperforming most of the large rich countries, except for India and China. Even Chancellor Rishi Sunak warned that, there was a need to “ensure public finances remain on a sure footing”, as public debt nears 100% of GDP, as he noted the two main drivers for the strong forecast continued to be the success of the UK’s vaccine rollout and the government’s Plan for Jobs. It estimated that UK unemployment will peak by year end at 6.1%, compared to the 2019 and 2020 figures of 3.8% and 4.5%. The OECD changed its global forecast from 4.2% to 5.8%, with the now standard caveat that growth would not be shared evenly. The agency’s forecast for the US is upbeat with an estimate growth over the next two years at 6.9% and 2.6%. It also guesstimated when countries would return to pre-pandemic levels. The UK runs well behind India and China – and also US, Japan and Germany – with a mid-2022 return to “normalcy”, (the same as Italy and Canada), but ahead of France and Spain. However, with new and worryingly more infectious strains of Covid cropping up on a regular basis, there is a possibility that this will not happen This Time Next Year.

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