Not All That Glitters Is Gold!                                                20 October 2021

Last month, Dubai recorded the highest value of real estate sales in one month since December 2013, with a nine-month total of sales transactions of 5,762, valued at over US$ 4.4 billion, bringing the YTD total to 43,299 sales transactions, worth US$ 28.4 billion. In only nine months, the YTD total sales transactions are already the highest yearly sales figure since 2017 – and 45.2% higher than at this time in 2020. Q3 2021 had seen Dubai’s best quarter volume and value returns since 2009, after posting 15,927 sales transactions, worth US$ 11.54 billion. Compared to the same periods last year and in 2019, Q3 figures for volume and sales were 85.4% and 135.4% higher than 2020 and up 64.5% and 138.8%, compared to 2019.

Using January 2012 as a 1.000 base line, the Mo’asher September overall monthly index was at 1.115, and an index price of US$ 290k, and for the quarter at 1.128 and US$ 287k. The monthly indices for apartments and villas/townhouses stood at 1.140 and 1.098, with prices at US$ 260k and US$ 529k respectively; on a quarterly basis, the figures were 1.134/US$ 258k and 1.124/US$ 533k.

In the month, 56% of all sales transactions were for secondary/ready properties and the balance for off-plan properties, with the former posting 3,232 sales transactions worth US$ 3.02 billion, and the latter transacting 2,530 properties, valued at a total of US$ 1.39 billion – the highest value of off-plan sales transactions the Dubai Real estate market has seen in over eight years. In Q3 2021, 56.6% of all sales transactions were for secondary/ready properties and 43.38% were for off-plan properties. As for the volume of transactions, the off-plan market transacted 6,909 properties, worth a total of US$ 3.68 billion, and the secondary market transacted 9,017 properties valued at US$ 7.86 billion.

Property Monitor noted that residential property prices rose for the eleventh month in a row, but with the pace slowing; last month, there was a 1.2% increase in prices to an average of US$ 264 per sq ft. The consultancy estimated that prices were still 19% short of the 2014 peak, but the market is expected to continue its recovery process, driven by Expo 2020 and resurgent consumer, (and investor), confidence. It did warn that, with inventory slowing amid strong demand for villas, a widening buyer-seller expectation gap regarding pricing is appearing, leading to overpriced properties staying in the market, as buyers explore other options rather than paying higher prices. (Whether that is actually now the case is debateable, but it will become a drag factor sometime in this current cycle). There is every likelihood that a new market high will occur during this current cycle, assuming there is no resurgence with Covid, oil remains above the US$ 80 mark and interest rates remain flat.

Latest September figures from STR point to a major improvement in Dubai’s hospitality sector, ahead of the opening of Expo 2020, as the average occupancy rate jumped to 67.2% – 51% up on the same return last year- and higher than the 58.0% and 53.9% posted the previous two months. The improvement, which is expected to continue over the next six months, is attributed to several factors including improving local weather, Expo 2020 and travel restrictions being markedly eased across the world. Another indicator sees revenue per available room (RevPAR) 117% higher on the year at US$ 74. For the first seven months of the year, visitor numbers reached 2.85 million and the emirate will benefit from the fact that it was one of the first cities globally to re-open its markets and businesses in July 2020 and that it continues to stay open. Another positive sign saw the removal of the UAE from the UK’s red list in August, followed by the recognition of UAE-administered vaccines from October that allows travel between the two countries, with no need for home isolation. In addition, the loosening of restrictions with India and Saudi Arabia is bound to boost visitor numbers. There is hope that Expo 2020 will drive figures higher – in the first seventeen days of October, visitor numbers were at over 771k – 12% higher on the week ending 17 October. Whether its ambitious target of 25 million visitors will be reached come 31 March 2022 remains to be seen but being Dubai, it will give it a good shot.

Last Sunday, Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed, officially opened the 41^st edition of GITEX GLOBAL x Ai Everything, reaffirming the emirate’s commitment in supporting the global technology community, accelerating innovation, boosting resilience and driving its transformation agenda post-Covid. The world’s most influential technology sourcing and networking event of the year, exhibiting GITEX GLOBAL, Ai Everything, GITEX Future Stars, the Future Blockchain Summit, Fintech Surge and Marketing Mania, attracted more than 3.5k exhibitors from over 140 countries. On Wednesday, HH Sheikh Mohammed bin Rashid visited the global event and said Gitex represented the UAE’s “aspirations for its future economy”, whilst praising the high-profile trade show for bringing the world together to develop the technology of the future.

As the Dubai government continues to take firm steps to accelerate efforts to boost its digital economy, Dubai could add a further 600 new entities, bringing its total cryptocurrency businesses to 1k by the end of next year. Speaking at a Gitex conference, Dr Marwan Al Zahrouni, Dubai Blockchain Centre’s chief executive, commented that “five years ago you wouldn’t see people coming to Dubai to do the cryptocurrency business … we’re open-minded, and we’re willing to change regulations with reason.”  According to a recent Nickel Digital Asset Management survey, it was noted that many local institutional investors and wealth managers plan to increase their cryptocurrency exposure over the next two years. Although several cryptocurrency exchanges have been given permission to operate in free zones, they are not licensed by the UAE Central Bank. Launched only this May, the DMCC Crypto Centre already boasts 100 members, with a further 900 having applied for licences. Ralf Glabischnig, founder and board member of Swiss crypto hub CV Labs, said that the market in Dubai will “grow faster compared to anywhere else”.

Another indicator that some form of normalcy is returning to post-Covid Dubai is that, according to Dubai Municipality, over 1.5k new food establishments have opened in Dubai YTD, bringing the total portfolio to 20.4k; this equates to an impressive 5.5 new outlets every day. With Expo having started earlier in the month – and continuing until the end of March – there is every chance, with increased business, (and investor), confidence, that this number will top 2k by year end.

Dubai Internet City, currently home to 15k workers and 1.6k companies, expects staff numbers to jump to 40k by 2025. Ammar Al Malik, managing director of the free zone, noted that “there are a few industries that are going very fast such as e-commerce, logistics, digitalization, payment solution, fintech and agricultural technologies. The next unicorns are likely to come from these fields because they have very strong interests”, following earlier successes such as Careem, being acquired for US$ 3.1 billion by Uber, and the US$ 1.1billion merger of Bayut and Dubizzle. The MD also reckons that company digitalisation, that used to span up to four years, now has a probable six-month time period and that there could be at least three unicorns coming up in the country, within the next three years.

HSBC’s 14th annual Expat Explorer study, involving 20k expatriates, has ranked UAE fourth in the world for the best country to live and work in – ten places higher than last year. According to the survey, the top three reasons cited by expats for choosing to move to the UAE were to improve their earnings (56%), to progress their career (49%) and to improve their quality of life (43%). There is no surprise to see that 86% said their overall quality of life is better than their home country. Among the findings for the UAE were that 82% felt optimistic that life will be more stable and normal again in the next twelve months despite the global pandemic – compared to the global 75% average – with 53% expecting an increase in their income and 57% forecasting a better work/life balance. UAE was placed behind Switzerland, Australia and New Zealand but ahead of Guernsey, Jersey, Isle of Man, Bahrain, Singapore and Qatar – a strange eclectic of nations indeed.

For the seventh consecutive year, the Dubai Multi Commodities Centre has received the Global Free Zone of the Year 2021 award by the Financial Times’ fDi Magazine. It also won Global Free Zone of the Year and Middle East Free Zone of the Year- Large Tenants. During the year, DMCC opened international representative offices in Tel Aviv and Shenzhen, and launched both the DMCC Crypto Centre and DMCC Cacao Centre. In 2020, it welcomed over 2k new companies and looks set to bring its total number of entities to 20k by the end of this year.

With a US$ 272 million investment, Dubai Investments signed an agreement with Ras Al Khaimah-based master developer Marjan to acquire land to develop a mixed-use waterfront destination on Al Marjan Island. It will comprise a beachfront resort, serviced apartments and 170 villas, plus residential buildings, retail, food and beverage outlets. The latest foray is a continuation of the Dubai’s company strategy to add more high-end hospitality projects to its growing portfolio. RAK is fast becoming a global hub for both wellness and adventure holidays and the Dubai company, 11.54% owned by Dubai’s sovereign wealth fund, the Investment Corporation of Dubai, wants a piece of the action.

This week, GeoPost acquired 20.15% of Dubai-listed Aramex, purchasing 295 million shares for US$ 381 million. News of the sale to the French parcel group sent Aramex’s share 14.9% higher to US$ 1.34 – its biggest intraday gain since January 2009 and recovering all its 2021 losses, closing 0.2% higher YTD. GeoPost, a unit of the French government’s postal arm, delivers about 1.9 billion parcels a year through the brands DPD, Chronopost, SEUR and BRT, with its 2020 revenue at US$ 12.8 billion. It has had a fifteen-year relationship with Aramex in Europe and employs more than 15.5k in more than six hundred locations, across more than sixty-five countries.

Emirates NBD posted a 61% hike in Q3 revenue to US$ 681 million and a 29% increase in the nine months to US$ 1.99 million, driven by the continuing local (and global) economic recovery, record retail financing and impairment charges declining 42%; net profit, at US$ 653 million, beat market expectations. Although total income was 7.0% higher on the quarter, helped by a higher contribution from DenizBank and a more efficient funding base, year on year total income was 5.0% lower from record low interest rates. Customer deposits stood at US$ 106.1 billion at the end of Q3 – 3.0% higher than at the beginning of the year – with total assets remaining stable at US$ 1.90 billion.

Despite a 6.9% hike in revenue to US$ 786 million, du posted a 65.6% slide in Q3 net profit, to US$ 77 million, as operating expenses rose 6.9% to US$ 616 million, along with higher depreciation and amortisation charges. The company’s mobile customer base touched 6.5 million in Q3, with the company gaining 1.3 million post-paid customers, whilst the number of prepaid customers fell to 5.2 million subscribers.

The DFM opened on Sunday, 17 October, 17 points higher the previous week, gained a further 68 points (2.4%) to close the shortened week on Wednesday at 2,857. Emaar Properties, US$ 0.02 lower the previous week, regained the US$ 0.02 to close at US$ 1.09. Emirates NBD and Damac started the previous week on US$ 3.73 and US$ 0.34 and closed on US$ 3.76 and US$ 0.34. On Wednesday, 20 October, in much-improved trading, brought about by Aramex, 458 million shares changed hands, with a value of US$ 468 million, compared to 112 million shares, with a value of US$ 43 million, on 14 October.

By Thursday, 21 October, Brent, US$ 11.30 (15.4%) higher the previous three weeks, shed US$ 0.49 (0.6%), to close on US$ 84.00. Gold, US$ 37 (2.1%) higher the previous week, lost US$ 9 (0.5%) to close Thursday 21 October on US$ 1,787.  

The first US bitcoin futures-based exchange-traded fund (EFT) began trading on Tuesday, coinciding with Bitcoin increasing in value to a six-month high of US$ 63.3k and then on Wednesday reaching its all-time high of US$ 66,974, overtaking its previous record of US$ 64.9k set last April. Ten years earlier, in April 2011, it was valued at just US$ 1 and at the beginning of 2015 at US$ 315.

Investment bank Credit Suisse has been fined US$ 203 million by the UK’s Financial Conduct Authority and will write off a further US$ 200 million owed by the Mozambique government over a corruption scandal involving the country’s tuna fishing industry. The fine is part of a US$ 475 million settlement with UK, Swiss and US regulators. The Swiss bank’s staff allegedly took and paid bribes, as they arranged US$ 1.3 billion of industry loans and were accused by the FCA that it had “failed to properly manage the risk of financial crime”. It was also reported that a Mozambique government contractor secretly paid “significant kickbacks, estimated at over US$ 50 million, to members of Credit Suisse’s deal team”, including two managing directors, between 2012 and 2016 in order to secure loans at more favourable rates. Meanwhile, it seems that Mozambican officials fared slightly better receiving US$ 137 million in bribes. The bank also agreed to settle with the SEC in the US, paying a US$ 100 million fine, with the regulator indicting former Credit Suisse investment bankers and their intermediaries, whilst back in the African country, nineteen individuals – including the son of former President Armando Guebuza – have gone on trial charged with bribery, embezzlement and money laundering. It will be interesting to see who goes to jail, (and who does not), for their participation in this fraud.

To add further woes to Boeing’s catalogue of problems, it has confirmed that some titanium parts on its 787 Dreamliner were improperly manufactured over the past three years. The manufacturer noted that there were no issues to the safety of current flights but that all planes carrying passengers will undergo a review. The parts, provided by fellow aerospace company Leonardo, who purchased the items from an Italian-based company, Manufacturing Processes Specification, include fittings that help secure the floor beam in one fuselage section, as well as other fittings, spacers, brackets, and clips within other assemblies. Earlier problems started in September 2020 when the FAA said it was investigating manufacturing flaws; at the time, airlines using that model removed eight jets from service and Boeing was unable to resume deliveries of the 787 Dreamliner until five months later. Two months later in May 2021, the FAA raised concerns about its proposed inspection method and in July, the safety watchdog reported that some 787 Dreamliners had a manufacturing quality issue near the nose of the plane that must be fixed before Boeing can deliver to customers.

With its business booming in the UK, Amazon is in the throes of hiring 20k new positions and, as it is operating in a very tight employment sector, it is offering one-off payments of up to US$ 4k in order to attract staff in UK regions where there is high demand for labour. In August, the online retailer started offering a US$ 1.4k signing-on bonus to recruit permanent staff in some regions, including US$ 4k for locations such as its Exeter warehouse and US$ 2k for new temporary and permanent workers in Peterborough. The wage inflation instigated by Amazon will have a knock-on effect as the cost of higher pay rates and bonus payments will inevitably be borne by the end user. Last month, the tech giant announced that its sales had risen by 50% to US$ 28.3 billion, whilst its direct tax bill came in at a paltry US$ 676 million.

In a bid to construct the so-called metaverse – a nascent online world where people exist and communicate in shared virtual spaces – Facebook Inc is planning to hire 10k in the EU. Last month, the tech giant, founded by Mark Zuckerberg, committed US$ 50 million towards building the metaverse, as it tries to catch up with earlier entrants such as Roblox Corp (RBLX.N) and “Fortnite” maker Epic Games. Recently, it launched a test of a new virtual-reality remote work app, where users of the company’s Oculus Quest 2 headsets can hold meetings as avatar versions of themselves.

Today, 21 October, Evergrande shares tanked 14% in Hong Kong, as trading resumed after a seventeen-day hiatus because of an expected announcement that real estate firm Hopson Development was set to buy a 51% stake in its property services unit. Yesterday, the huge development company posted that the US$ 2.6 billion deal had fallen through which increased investors’ concerns about Evergrande’s US$ 300 billion debt mountain, with liabilities equal to about 2% of China’s GDP. Evergrande’s chairman and founder Hui Ka Yan says its plan is to try to secure extensions for its debts and “other alternative arrangements” with its creditors, but added, “there is no guarantee that the group will be able to meet its financial obligations”. If the crisis turned into an economic collapse of Evergrande, then the shockwaves will be felt around the world’s markets. Already battling the energy crisis and soaring raw material costs, the last thing Chinese authorities want to see is a meltdown from its property developers which are believed to be in debt of over US$ 5 trillion. The indebted property giant has reportedly missed two interest payments to overseas investors and has asked for several extensions for interest payments, but it is only a matter of time before it defaults. Before then, the company may receive a call from Beijing to fire sell some of their assets which would be sobering news for shareholders who have already lost 80% of their investment this year.

With the UK government confirming financial support to accelerate automotive electrification, Ford will invest up to US$ 316 million to produce components for electric cars at its existing plant in Merseyside. The plant is gradually phasing out the manufacture of combustion-engine transmissions and repurposing the Halewood plant to build electric power units within three years. It will become the first such factory in Europe to make electric vehicle parts for Ford, protecting 500 jobs at the site. Ford will produce about 250k electric power units at the plant, adding to a growing trend among car makers to manufacture electric car components themselves.

To add further woes to the already troubled UK supply network comes the news that Domino’s Pizza is intending to hire more than 8k drivers in the UK and Ireland in the run-up to Christmas; it had already taken thousands of extra staff, including 5k cooks and drivers in June, to meet increased demand and it also confirmed that most of these new positions will be permanent. The pizza chain reported that more than 90% of store managers had started in the kitchen or as delivery drivers. There is no doubt that this is a big ask considering that there is a massive nationwide shortage of heavy goods vehicle (HGV) drivers, backed up by a job site analysis that concluded that the share of searches being made for seasonal roles by jobseekers was 27% lower than in the same period in 2019 and down 33% on its 2018 level. The pizza chains latest quarterly revenue figures to 26 September were 8.8% higher at US$ 516 million, with orders up 40.3% to be at 82% of pre-pandemic levels.

With strong north winds blowing and temperatures falling by as much as sixteen degrees Celsius, China’s energy crisis deepened, as power plants clambered to stock up on coal, which in turn saw prices hitting record highs. Power shortages are expected to continue into Q1 2022, with analysts and traders forecasting a 12% decline in industrial power consumption in Q4, as coal supplies fall short and local governments give priority to residential users. The most-active January Zhengzhou thermal coal futures hit a record high US$ 259.42 per tonne last Friday, with the contract having already risen more than 200% YTD. Despite attempts by China to be “carbon neutral” by 2060, and it trying to reduce its reliance on polluting coal power in favour of cleaner wind, solar and hydro, it is inevitable that coal will provide the bulk of its electricity requirements for some time. The crisis has highlighted the difficulty in cutting the global economy’s dependency on fossil fuels, as world leaders seek to revive efforts to tackle climate change at COP26 UN climate conference starting next month in Glasgow.

Canada’s inflation rate hit the roof in September, reaching 4.4% – its highest level since February 2003 – driven by marked increases in the costs of transport, housing and food brought on by the global supply chain issues, surging pent up consumer demand, product shortages and rising energy prices. It is estimated that petrol pump prices are 32.8% higher on the year, with other prices including food, meat and housing up by 3.9%, 9.5% and 4.8% respectively. Last year, the Bank of Canada cut its baseline interest rate to 0.25%, so as to support the economy, by cutting the cost of borrowing for consumers and businesses. Inflation can be controlled by raising rates but any movement before the end of the year is highly unlikely because the central bank is of the opinion that the “inflationary surge is transitory.”

The UK has cut a free trade deal with New Zealand which, according to Prime Minister, Boris Johnson, will reduce costs for exporters and open up New Zealand’s job market to UK professionals, as well as benefitting consumers and businesses. Tariffs will be removed on UK goods including clothing, ships and bulldozers, and on New Zealand goods including wine, honey and kiwi fruits. Although the free trade agreement is unlikely to boost UK growth, it, (along with the recent similar agreement with Australia), will enhance its chances of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The eleven countries currently in the bloc – Australia, Brunei, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore and Vietnam – account for an estimated 13.4% of global GDP, equating to US$ 13.5 trillion.

There are more than mumblings from Threadneedle Street that the Bank of England is finally moving towards a move to bump up interest rates, from its current record low of 0.1%. The central bank has already intimated that UK inflation is set to top 4% – double that of its long-standing 2% target – with energy prices leading the drive. At the end of last month, figures showed prices rose by an average of 3.2% over the previous twelve months. The next Bank’s rate-setting Monetary Policy Committee (MPC) is due to meet on 4 November.

Unilever, with a 2020 US$ 5.93 billion turnover, and 400 household brands, including the likes of Axe, Dove, Omo, Wall’s ice cream, Magnum, Oxo, Magnum, Knorr, Lipton and Sunsilk, has increased prices on its products by 4.1% in Q3 – the biggest rise in almost a decade.  It also warned that it expects consumer inflation to accelerate next year. Mattel has also raised its prices driven by soaring shipping and raw materials costs. The Barbie toymaker announced an 8.0% hike in Q3 revenue, to US$ 1.8 billion, and interestingly posted that price hikes had not affected sales.

Last November, Boris Johnson launched an ambitious ten-point plan to prioritise green technology and climate goals in UK’s economic recovery from the pandemic, and to date it has raised a credible US$ 8.0 billion.  The event, with two hundred attendees, including ministers, industry leaders and British royals, was designed to drum up financing for projects to help the UK meet its climate goals and regenerate struggling post-industrial areas of the country left behind by a decades-long economic focus on the services sector. There is no doubt that the UK is aiming to be a front runner in the global race to capitalise on the demand for better green technology and the highly-skilled, highly-paid jobs that are expected to come with it.  Its target is US$ 57.5 billion of private investment by 2030 in energy, buildings, transport, innovation and the natural environment, alongside the creation of 250k ‘green jobs’.

Before Tuesday’s Global Investment Summit, at London’s Science Museum, the UK had already secured eighteen new trade and investment deals, totalling US$ 13.4 billion, that will support green growth and create over 20k jobs. The biggest, at over US$ 8 billion, was for a Spanish-backed offshore wind farm, with electric utility company Iberdrola planning to invest with Scottish Power in the East Anglia Hub offshore wind farms, creating 7k jobs, subject to securing planning consent and a contract for difference. Meanwhile, global logistics company Prologis will invest US$ 2.1 billion over the next three years to develop net-zero carbon warehouses across London, the SE and Midlands, supporting about 14k new jobs. The UK’s goal to be net zero by 2050 will be helped by this package of deals in various sectors, including wind and hydrogen energy and sustainable homes, as well as carbon capture and storage. Also at the summit, trade minister Anne-Marie Trevelyan, praised the recent expansion of the Strategic Investment Partnership with the UAE as an example of the “strategic and high-value deals” the UK is now forming with the world’s “largest and fastest growing economies”. In September, Abu Dhabi’s Mubadala Investment Company committed US$ 12.4 billion to Britain’s technology, infrastructure and energy transition.

This week, Goto Energy became the sixteenth provider to exit the UK energy market already this year; it provided energy supplies to some 22k households. The top six companies to fail so far in 2021 have been Avro Energy, People’s Energy, Green Supplier, Pure Planet, Utility Point and Igloo which supplied 580k, 350k, 255k, 235k, 220k and 179k homes respectively, accounting for 1.810 million of the over 2 million homes affected by bankrupt energy companies folding.  A 250% surge in energy prices already this year is the main cause behind these failures, as many have been caught between rising costs and the UK’s energy price cap, which limits what companies can charge consumers.

Scottish brewer Brewdog is in trouble with the authorities yet again because of a promotion saying that customers could win “solid gold” beer cans, which the advertising watchdog has found to be misleading. The company offered shoppers the chance to find a gold can hidden in cases sold from its online store but in fact they were gold-plated. The ruling comes amid heavy criticism of Brewdog in recent months, with ex-workers stating former staff had “suffered mental illness” as a result of working for the craft beer brewer and that it had fostered a culture where staff were afraid to speak out about concerns. As well as complaints over the prize’s authenticity, some winners questioned that the can was not worth the US$ 21k that Brewdog had claimed; it was estimated that a can made of 330 ml of pure gold would have cost around US$ 500k. Embattled chief executive, James Watt, will quickly recover from this latest setback whilst many of his customers will realise that Not All That Glitters Is Gold!