Lock ‘Em Up!                                                                                      02 December 2021               

For the past previous week, ending 25 November, Dubai Land Department recorded a total of 1,850 real estate and properties transactions, with a gross value of US$ 1.91 billion. It confirmed that 1,684 villas/apartments were sold for US$ 1.04 billion, and 166 plots for US$ 275 million over the week. The top three land transactions were for a plot of land in MBR Gardens, worth US$ 39 million, followed by one for US$ 22 million in Nad Al Shiba and another for US$ 21 million in Jebel Ali. The most popular locations in terms of volume were Business Bay, with 285 transactions, totalling US$ 170 million, and Dubai Marina, with 206 transactions worth US$ 157 million. Mortgaged properties for the week totalled US$ 537 million and 71 properties were granted between first-degree relatives, worth US$ 67 million.

Knight Frank’s latest report estimates that Dubai’s average October house price rose 21.0% to US$ 336 per sq ft in the first ten months of the year, driven by an accelerated vaccination programme and other government measures. Other factors impacting on the price increases include people upgrading to larger homes with outdoor amenities, (amid a surge in remote working and online learning), government stimulus packages and other initiatives, such as residency permits for those who have retired as well as for remote workers, and the expansion of the ten-year golden visa programme. The consultancy noted that there had been increased demand from “non-resident, ultra-high-net-worth individuals” which has resulted in the market for US$ 10 million properties witnessing the percentage of total transactions rising from its long-term average of just 2% to 7%. Surprisingly, residential values are still about 29% below 2014 peak levels which may point to further hikes in this current cycle.

Since the onset of the pandemic twenty-one months ago, Knight Frank indicated that villa prices had risen 14% and that apartments in the more expensive areas of Dubai – such as The Palm Jumeirah and Downtown Dubai – outperforming the average, as have villa prices in areas such as Mohammed Bin Rashid City, Dubai Hills and The Palm Jumeirah. October home sales, at US$ 3.05 billion, were 8.2% lower than in September which had been 100% higher than the previous September record of US$ 1.66 billion posted in 2009.

Meanwhile Asteco noted a broader recovery in the emirate’s Q3 residential sector, estimating that apartment and villa prices were 14.0% and 37.0% higher on the year. In line with the consensus, the consultancy expects prices to edge higher in December and that the growth trend will continue into 2022, albeit at a slower pace, as more developments come on stream. During the past twelve months, rents have also headed north – villas by an average 19.0% and apartments a disappointing 3.0%.

Dubai Maritime City is to spend US$ 4 million to complete the upgrade for its wastewater management network in the industrial precinct which will connect DMC, Mina Rashid and P&O Marinas to the existing Dubai Municipality main infrastructure. DP World’s purpose-built maritime centre, currently with 300 business partners and 82% occupancy, has a range of workshops, warehouses, showrooms, shops and office spaces, and is set for further expansion.The current project, with 98% of the design work and 36% of the engineering and placement of contracts completed, is scheduled to be finalised by the end of H1 2022. It is related to the upgrade project that commenced in October 2020 and is scheduled for completion in Q2 of 2022.

UAE’s fuel price committee announced that retail prices will dip by over 1% this month. Super 98, Special 95 and diesel have declined by 1.1% to US$ 0.755, 1.1% to US$ 0.725, and 1.4% to US$ 0.755. Covid had seen prices frozen for a year and it was only in March this year that prices were duly amended, with Special 95 and diesel retailing at US$ 0.548 and US$ 0.586. Petrol prices in the UAE were liberalised in August 2015 to allow them to move in line with the market, at which time Special 95 and diesel prices were at US$ 0.58 and US$ 0.56.

Dubai-based iOL Pay, a wholly owned subsidiary of enterprise system provider Illusions Online, hopes to become the first US$ 1 billion global hospitality FinTech unicorn, within twelve months; it has already launched in thirty-seven international markets. The company’s aim is to transform how the hotel industry manages payments, with its platform will enabling clients to initially manage US$ 500 million in total processing value; this figure is expected to expand sixfold within two years. The tech company reckons that “as digitisation has swept through the hospitality industry, consumer and B2B payment systems and processes haven’t advanced at the same pace.” It also notes that global hotel process payments topped US$ 1.45 trillion last year but that it would focus on the four and five-star hotel category, valued at US$ 450 billion.

Founded in 2014, Telr is a payment gateway provider that offers a set of APIs and tools, enabling businesses to accept and manage online payments via web, mobile and social media. This week Cashfree Payments became one of its largest shareholders when investing US$ 15 million in the Dubai’s e-payment solution firm, with the money being utilised to expand operations in the Mena – a fast growing online payment market. The move will benefit both parties, with a unified cross-border payments platform assisting Indian merchants accepting payments from customers in Mena and vice-versa. The region’s digital payments market is expected to grow at a 15.4% compound rate annual rate over the next five years. According to the Dubai Chamber of Commerce and Industry, UAE’s e-commerce market grew 53% to US$ 3.9 billion last year, with more of the same expected forthwith.

The DFM opened on Sunday, 28 November, 95 points (2.6%) lower the previous week and lost 192 points (5.9%) to close the shortened week, because of National Day holidays, on Tuesday 30 November at 3,073. Emaar Properties, US$ 0.05 lower the previous week, closed down US$ 0.06 at US$ 1.28. Emirates NBD and Damac started the previous week on US$ 3.58 and US$ 0.37 and closed on US$ 3.60 and US$ 0.38. On Tuesday, 30 November, 365 million shares changed hands, with a value of US$ 271 million, compared to 416 million shares, with a value of US$ 147 million, on 25 November.

For the month of November, the bourse had opened on 2,864 and, having closed the month on 3,073 was 209 points (7.3%) higher. Emaar traded up from its 01 November 2021 opening figure of US$ 1.11, to close November US$ 0.07 higher at US$ 1.28. Two other bellwether stocks, Emirates NBD and Damac, started the month on US$ 3.75 and US$ 0.38 and closed on 30 November on US$ 3.60 and US$ 0.38 respectively. YTD, the bourse had opened the year on 2,492 and gained 581 points (23.3%) to close the eleven months on 3,073. NBD and Damac started the year on US$ 3.33 and US$ 0.35 and closed 30 November at US$ 3.75 and US$ 0.38.

By Thursday, 02 December, Brent, US$ 1.46 (1.8%) lower the previous fortnight, tanked US$ 10.41 (12.8%), to close on US$ 70.80. Gold, US$ 78 (4.2%) lower the previous week shed US$ 19 (1.1%), to close Thursday 02 December on US$ 1,773.  Brent started November on US$ 83.64, and had a disastrous month losing US$ 12.33 (14.7%), to close on US$ 71.31. YTD, it started the year trading at US$ 51.80 and has gained US$ 19.51 (37.7%) to close on US$ 71.31 during the first eleven months of the year. Meanwhile, the yellow metal opened November trading at US$ 1,785 and shed US$ 7 (0.4%), during the month, to close on US$ 1,778. Over the year, it has lost US$ 117 (6.2%) from its opening year balance of US$ 1,895.

Although final figures will not be known until January, Black Friday, traditionally the busiest and most important day of the year for US retailers, saw thinner shopping traffic and lower than pre-pandemic levels; Thanksgiving Day sales were flat at US$ 5.1 billion. Although figures indicate that visits to stores and shopping centres climbed 48% on the year, they still lagged 28% behind 2019 traffic. Probably the most important driver behind these figures is the fact that retailers spread out traffic peaks by starting holiday deals much earlier; in the past, the holiday season traditionally started the week of Black Friday. With supply chain problems apparently continuing unabated, the trend of prioritising in-store shopping to beat any logjams has resulted in physical shop visits declining only 10% compared to pre-Covid levels, whilst Black Friday online spending, of US$ 8.9 billion, was at the low end of expectations – and slightly less than the US$ 9.0 billion recorded last year. In shops, toys and cooking items were the top sellers, whilst electronics and video games, such as FIFA 22from Electronic Arts and Ubisoft Entertainment’s Far Cry 6 dominated the list of top-selling products bought online. One worrying factor saw a marked 31% annual hike in the use of BNPL (Buy Now, Pay Later), accounting for 8% of all payments.

Utilising a Spac (special purpose acquisition company), Grab made its stock market debut on New York’s Nasdaq, valuing the Singapore ride haling app at US$ 40 billion. Initially, shares rose 21% but this was short-lived with them closing its first day down more than 20%. The tech app has yet to make a profit and does not expect to be trading profitably until 2023 but has indicated that its profit margins were “industry leading” and that it was focused on growing in a cost-disciplined way.

In the UK, the RAC is pointing the finger at retailers for pushing fuel prices higher on the back of wholesale oil prices. Last Friday, 19 November, oil prices dropped US$ 10 a barrel on the news of the spread of the Omicron variant but this has yet to be reflected at the pumps. Last month, retailers added US$ 0.041 to a litre of unleaded petrol. The RAC noted that, despite wholesale costs having fallen by US$ 0.093 from mid-November, retailers continued to put prices up, with the average cost of a litre of unleaded petrol ending the month at US$ 1.96, after peaking at a record US$ 2.01 on 21 November. The motoring organisation said this price hike was “completely unjustified”, with larger retailers – such as Asda, Sainsbury’s, Tesco and Morrisons – making a “shocking” profit.

November saw Australian housing prices climbing for the 14th-straight month, but the pace of growth last month, (1.3%) was the slowest since January, indicating the latest boom may be nearing its peak; in November, regional markets and capital cities showed rises of 2.2% and 1.1%, with the number of homes listed for sale in Sydney and Melbourne recently increasing – a sure sign that stock levels across those cities have pretty well returned to normalcy. Over the year, Hobart had the biggest capital city price increase, at 27.7%, and Perth the smallest rise at 14.5%. The market is waiting for the inevitable lifting of interest rates, as one of the main drivers of the recent boom has been the historically low mortgage rates; indeed, average fixed rates are rising for new borrowers. In November, Canberra median house prices almost touched the AUD 1 million (US$ 717k) level, ahead of Melbourne’s AUD 987k, but behind Sydney’s AUD 1 million mark.

Although Australia’s economy recorded its third-biggest fall on record, (Q3, a 1.9% contraction), attributable to lockdowns slashing economic activity., it was still 3.9% bigger than it was at the same point in 2020, after Q2 2020 had seen the worst quarterly fall on record of 6.8%. The latest data shows the current GDP is 0.2% lower than the Q4 2019 pre-pandemic level. There was a 4.8% slump on household spending, but household savings rose 19.8% due to the fall in spending plus stimulus payments that boosted disposable incomes. There was a 5.8% slump in services spending focused on hospitality, (tanking 21.2%), recreation, culture, and transport. Household spending in NSW, Victoria and the ACT fell 8.4%, compared with the other states, which rose 0.7%. Stimulus packages and other government support measures saw household gross disposable income rise 4.6% and SMEs recording a surprise 8.0% bounce in profits, also no doubt helped greatly by stimulus payments. That rise in incomes, combined with the slump in spending, saw the household savings ratio jump from 8% to 19.8%, nearing the record 23.6% high reached during the first lockdown in Q2 2020. However, there has been a marked improvement, with  the economy bouncing back, as restrictions were lifted and there is every chance that it will recover most or all of the lost ground in Q4, with a major caveat – the Omicron variant.

News of a new strain of Covid-19, that may be resistant to the current vaccine regime, and discovered in South Africa las Friday, sent the global markets in a spin, with major Australian companies, such as Flight Centre, Qantas and Corporate Travel Management, falling sharply down between 5% -7% on the day.  Although the general population will be more readied if a fourth wave were to arrive, the economy may not be. Twenty months ago, when Covid-19 struck, the economy was in a much better state than now, with an almost balanced budget and enough monetary wiggle room to introduce massive stimulus packages. Now the government is in US$ 615 billion worth of debt, and the RBA’s cash rate is just above the zero rate. Another extended lockdown would prove to be an economic disaster. A further problem would be inflation rates which have more than doubled this year which in turn will result in an uplift in interest rates – and therefore leading to heading higher borrowing costs. Whilst the possibility of a further lockdown remains, global markets will continue to be volatile, and investors will have to exercise caution during these troubled times.

With the current surge in inflation expected to continue into 2022, Federal Reserve Chairman Jerome Powell seems to indicate that, at the next mid-December policy meeting, there could be a winding down of its large-scale bond purchases. He was speaking after the emergence of the new coronavirus variant – which had rattled markets last Friday – saying it could not be compared to the spring of 2020 when the pandemic erupted. More interestingly, he suggested that he may have got it wrong when he considered rising inflation to be transitory and that policy makers may well be taking early action to reduce inflation; that would mean further tapering of its 2020 QE strategy sooner than many had predicted, having already cut it to a monthly US$ 120 billion last month.

Having lost ground on Wednesday, which saw a steep sell-off in the last hour of trade on worries about the Omicron variant, and the upcoming withdrawal of stimulus by the US central bank, Thursday witnessed a rally. Better performers on the day were economically sensitive smaller stocks and transport firms, along with travel and hospitality stocks also bouncing back. Boeing shares surged with news that the aircraft maker had been making progress with Chinese regulators on getting approval of its 737 MAX plane; the authority issued an airworthiness directive on the aircraft that will help pave the way for its return to service in China, thirty-two months after being grounded following two deadly crashes. The Dow was 1.8% (618 points) higher at 34,640, the S&P 500 up 1.4% to 4,577 and the Nasdaq Composite 0.8% higher to 15,381, driven by two factors – strong economic data, particularly with labour figures, and reduced concerns that Omicron infections may not be as severe as first thought. Latest data sees claims for unemployment benefits rising by 28k to 222k for the week ending 27 November, having dropped to 194k a week earlier – its lowest level since 1969. It is estimated that there were 10.4 million job openings at the end of September and that the total number of people receiving unemployment benefits was 2.31 million in mid-November.

Again, no surprise to see banks behaving badly again. This week, the EC has fined a raft of them – including Barclays, Credit Suisse, HSBC, RBS and UBS, – US$ 390 million for colluding in the trading of foreign currencies. It is alleged that traders, acting on behalf of the “Secret Five”, exchanged sensitive information and shared their plans and “occasionally coordinated their trading strategies” through an online chatroom called Sterling Lads. The regulator commented that their behaviour “undermined the integrity of the financial sector at the expense of the European economy and consumers”.

Another week, and yet another case besmirches the Australian banking sector. This time it involves Westpac, with the Australian Securities and Investments Commission launching six court cases, for alleged, widespread compliance failures that impacted thousands of deceased consumers. The outcome sees the bank agreeing to pay US$ 58 million to compensate the estates of its affected customers, with ASIC seeking a further US$ 81 million in fines to which Westpac has all but agreed. Some of the offences committed by the bank included charging fees to its dead customers, double-charging insurance policies, (affecting 7k paying twice for the same house insurance) and failing to adequately disclose its fees to financial advice customers. Only last year, Westpac agreed to pay the largest fine in Australian corporate history — a US$ 932 million civil penalty for more than 23 million breaches of anti-money laundering laws.

The main problem is that the people who should get punished for these misdemeanours escape any penalties. Senior managers – who are often the purveyors of wrongdoing – will receive their bonuses at the time the offences take place Years later, when action is taken, the bank will incur all the charges and penalties afforded by the regulator or the courts. Shareholders and customers will pick up the tab. The former will see their equity reduce because of reduced profits, leading to a lower share value and the latter by bearing  the brunt of extra costs incurred and reduced service levels The instigators will escape scot free and the only way to curb theses excesses is to hit the culprits hard, not financially, but introduce custodial sentences. Lock ‘Em Up!