Whatever It Takes!

Whatever It Takes!                                                                                  27 May 2022

For the past week, ending 27 May 2022, Dubai Land Department recorded a total of 2,884 real estate and properties transactions, with a gross value of US$ 2.37 billion. A total of 297 plots were sold for US$ 433 million, with 2,116 apartments and villas selling for US$ 1.29 billion. The top three transaction sales were for plots of land – one in Al Wasl for US$ 59 million, another sold for US$ 30 million in Al Warsan First and a third for US$ 10 million in Saih Shuaib 2. The three leading locations for sales transactions were Al Hebiah Fifth, with 89 sales worth US$ 59 million, followed by Jabal Ali First, with 57 sales transactions worth US$ 51 million, and Al Merkadh, with 37 sales transactions, worth US$ 80 million. The top three apartment sales were one sold for US$ 173 million in Burj Khalifa, another for US$ 153 million in Business Bay, and third at US$ 135 million in Al Wasl. The sum of mortgaged properties for the week was US$ 55 million, and eighty-nine properties were granted between first-degree relatives, worth US$ 113 million.

With consumer confidence heading north, the economy recovering well and on-going government initiatives, Dubai’s realty sector is booming once again. It is estimated that 6.3k new apartments were handed over in Q1 (compared to 4k in Q4), but only 250 villas, and that the number will be 29k apartments and 3.3k villas by year end – somewhat lower than most estimates at the beginning of the year, some of which were well over 50k. For years, the tendency for so-called experts has invariably been to forecast new builds on the high side – and this year seems to be no exception. Because of demand for villas remains strong – with a limited supply – occupancy rates and annual average rents have surged by up to 25%, with average apartment rentals almost half that figure at 14%. Asteco report that Q1 office rental rates grew by 4.0% on average – and 6.0% on an annual basis.

Dubai’s real estate market posted almost 7k sales transactions in April, 45.5% higher compared to a year earlier, and the highest April return in a decade. Mo’asher, the emirate’s official Sales Price and Rental Performance index – launched by Dubai Land Department (DLD) in cooperation with Property Finder – uses 2012 as its base year. Last month, the index recorded a 1.273 monthly Index for sales and a quarterly index price of US$ 337k., split by villa/townhouse indices of 1,318 and US$ 579k and 1,331 and US$ 311k for apartments. In April, it recorded a 0.957 monthly index for rental and an index price of US$ 14.1k; the apartment monthly index posted 0.96, with an index price of US$ 13.0k, and the villa/townhouse monthly index recorded 0.872 and an index price of US$ 36.2k. The index noted that the secondary market for sales transactions continued to dominate the real estate market, with a steady percentage of 60.3% in terms of volume and 70.7% in terms of value. Apartments represented around 79% of total transactions, with villas/townhouses accounting for the 21% balance. In the first four months of the year, there were 27.5k total sales transactions in terms of volume – an impressive 68.33% growth rate, year on year.

Dubai average warehouse lease rates are recovering, at a pace, on the back of a surge in demand driven by changes in company ownership laws, a rise in e-commerce sales and the government’s efficient response to the Covid-19 pandemic. Knight Frank has indicated that this is mainly attributable to the manufacturing, logistics and automotive sectors, requiring more space as business confidence improves and the economy rebounds from the pandemic. Although dipping 0.8 to 54.7 in April, Dubai’s non-oil economy is still advancing, albeit at a slower rate, with output expanding at its second-fastest rate since mid-2019 along with new business rising sharply. The Knight Frank study noted that industrial grade A rents in Al Quoz recorded their sharpest increase both on a quarterly and annual basis, at 8.6% and 15.2%, with warehouse rents in the location, now the most expensive in Dubai, at US$ 10.35 per sq ft, only 0.4% shy of pre-pandemic levels. Of the nine industrial submarkets all but two – B rents in JAFZA and National Industries Park – have increased so far in 2022.

Danube Properties has launched a US$ 95 million project – a pyramid-shaped architecture Gemz in Al Furjan – the company’s sixteenth in its twenty-five-year history. It has a development portfolio of 8.3k units, valued at US$ 1.55 billion, and to date has delivered 4.6k units, worth US$ 989 million. The 14-storey project, with a built-up area of 530k sq ft, will be on a plot area of 101k sq ft, with a completion date slated for Q4 2024. With thirty amenities, it will house 270 apartments, (1B/R to 3B/R), with unique convertible layouts that allow expansion within each unit, most of which will come with an in-built swimming pool that is equipped with aqua gym and anti-current machine. The usual company payment plan is available – a 10% advance plus 1% per month – and prices will start at US$ 150k.

Damac Properties is launching two new clusters – Malta and Venice – to add to Santorini, Costa Brava, Nice and Portofino at its water-inspired Lagoons development. The developer noted that the villas and townhouses will be built around “extravagantly large pristine water lagoons with white sanded beaches”. Not surprisingly, Venice will feature gondola rides, arching bridges over canals and waterside cafes, whilst the Malta cluster will have a virtual reality park. The overall Lagoons development is set to open in 2024.

Last June, a forty-year-old, twelve-storey, South Florida condominium collapsed killing ninety-eight inhabitants. The families of the victims have made a near US$ 1 billion settlement with local officials, but investigations, by the National Institute of Standards and Technology into the cause of the collapse, could take years. Although there seemed to be hundreds of potential buyers for the 1.8-acre Surfside plot, none could match Hussain Sajwani’s bid. It seems that Damac Properties’ founder is expanding his already impressive property portfolio.

In Q1, the country’s non-oil foreign trade reached a record US$ 74.6 billion, growing by 20.5% on last year’s return. The report by the Federal Competitiveness and Statistics Centre confirmed that the three leading trading partners remained China (valued at US$ 15.5 billion), India (US$ 12.6 billion) and Saudi Arabia (US$ 8.9 billion). The main trading commodities continued to be gold, diamonds, telecom devices, mineral oils, ornaments/jewellery and cars with totals of US$ 23.0 billion, US$ 10.9 billion, US$ 10.1 billion, US$ 6.7 billion, US$ 5.7 billion and US$ 5.3 billion.

Drydocks World has signed a contract with Yinson Production to upgrade, refurbish, and convert a floating production storage and offloading (FPSO) vessel, to be delivered to Brazilian independent oil and gas company Enauta by Q3 2023. The Malaysian company  designs, constructs, and operates industry-leading production assets for the offshore oil and gas industry. This project will be fully operational by 2024 and will support the Brazilian company’s goal of producing up to 50k bpd from the field.

Last month, Dubai Chamber of Commerce, one of the triumvirate of chambers operating under Dubai Chambers, posted a 55.4% surge in membership, bringing its total to 300k companies, and making it the largest chambers of commerce in the world. During the past twelve months, its members’ exports and re-exports were 16.7% higher at US$ 5.50 billion; certificates of origin issued numbered 57.7k, up 8.2% on the year.

Probably to the surprise of many, the UAE is now one of the top five tea-exporting countries in the world, behind China, Sri Lanka, Kenya and India. With total 2020 exports reaching US$ 327 million, UAE trades with some 154 countries. The Federal Competitiveness and Statistics Centre noted that the total 2021 trade stood at US$ 507 million, with exports, reexports and imports totalling US$ 264 million, US$ 35 million and US$ 208 million respectively. In Q1, total trade was at US$ 160 million split US$ 85 million, US$ 14 million and US$ 61 million. As a nation, the UAE spends US$ 79 million on tea and that there are almost 15k coffee & tea kiosks in the country.

For the year ending 31 March, ENBD Reit posted a 4% occupancy increase in its property portfolio, to 80%, with its total value dipping 1.1% to US$ 356 million, whilst its Net Asset Value at US$ 167 million was 7.4% lower than the year before due to capital expenditure on the buildings. Its loan-to-value ratio was 2.0% higher at 54%. The Shari’a compliant real estate investment trust, managed by Emirates NBD Asset Management Limited, reduced its operating, (by 10.9%), fund, (19.3% lower) and finance costs by 10.9%, negotiated revised lease terms, and increased the average length of its leases during the fiscal year. A final US$ 5.0 million dividend was proposed for H2 of the fiscal year, 13.6% higher than a year earlier, bringing the annual dividend to US$ 9.5 million.

There was some good news for Emirates NBD this week with Moody’s upgrading its long-term ratings to A2 from A3 and short-term ratings to P-1 from P-2., whilst maintaining a stable outlook. The improved rating was driven by an upgrade in the bank’s Baseline Credit Assessment and an enhanced loan diversification.

The DFM opened on Monday, 23 May, 602 points (8.5%) down on the previous three weeks, and shed a further 97 points (2.9%), to close on Friday 27 May, on 3,297. Emaar Properties, US$ 0.07 higher the previous fortnight, shed US$ 0.12 to close on US$ 1.49. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.71, US$ 3.61, US$ 1.63 and US$ 0.62 and closed on US$ 0.70, US$ 3.54, US$ 1.61 and US$ 0.62. On 27 May, trading was at 93 million shares, with a value of US$ 67 million, compared to 76 million shares, with a value of US$ 62 million, on 20 May 2022.

By Friday 27 May 2022, Brent, US$ 0.19 (0.1%) higher the previous week, was up US$ 4.72 (4.3%), to close on US$ 115.07. Gold, US$ 25 (1.4%) higher the previous week, gained US$ 16 (0.9%), to close Friday 27 May, on US$ 1,851.  

Having entered the Russian market in 2007, Starbucks Corp has become the latest international company to leave the country, withdrawing its brand.  The chain, with 130 coffee shops, owned and operated by the Kuwait-based Alshaya Group, had suspended its operations at the onset of the war in March, and had stopped shipments to the country. The ME conglomerate noted that the decision to leave was a “Starbucks announcement” and referred questions to the coffee chain. No details were given of the financial impact but said it would continue to pay nearly 2k staff at Starbucks shops in the country for six months and provide assistance to partners “to transition to new opportunities outside of Starbucks”. Only last week, McDonald’s announced that it was selling its nearly 850 restaurants in Russia to a current licensee, Russian businessman Alexander Govor, who already operates twenty-five McDonald’s restaurants in Siberia, and will take on the firm’s restaurants and staff, operating them under a new brand.

Following Microsoft’s US$ 69.5 billion buyout of video game maker Activision Blizzard, Broadcom has announced what would be the second biggest deal of the year, with the acquisition of cloud computing company VMware in a US$ 61.6 billion cash-and-stock deal. In a bid to diversify its business into enterprise software, this agreement will give the chipmaker access to VMware’s cloud clients and data centres VMware shareholders will get US$142.50 per share, resulting in a healthy 49% premium on the stock’s 22 May close, when talks of the deal were first reported. Broadcom will assume US$ 8 billion of VMware net debt. Since 2018, when it acquired CA Technologies for almost US$ 27 billion and Symantec’s security division for US$ 15 billion a year later, software had become a major sector in Broadcom’s business strategy.

With the government’s”zero-Covid” policy – and subsequent countrywide ongoing lockdowns – Airbnb has decided to close its domestic rentals in China, with the app carrying no listings for homes and experiences in the country within weeks.  Since its launch in 2015, some 25 million guests have booked stays there through the online home rental company. It is estimated that revenue accounted for 1% of Airbnb’s total turnover. However, the tech giant is still hopeful that the number of Chinese residents travelling overseas will continue to grow at the same rate as in the past – over the decade to 2019, Chinese travellers tripled to 155 million journeys.

Prince Waleed’s Kingdom Holding received US$ 1.5 billion from the Public Investment Fund, Saudi Arabia’s sovereign wealth fund in a sale of a 16.87% stake, (625 million shares at US$ 2.42 a share), in the company. Since the beginning of the year, it has shed 9% in value, and following this divestment, Prince Waleed still retains a 78.13% share in Kingdom Holding, with a market value of about US$ 8.0 billion. The conglomerate’s portfolio is wide and varied and includes a myriad of sectors as well as international names such as CitiGroup, JD.com, global hospitality company Accor and ride-sharing companies Uber, Careem and Lyft. In its home base, Kingdom Hospitals and Kingdom Schools, Saudi petrochemicals company Tasnee, budget airline flynas, private aviation company NasJet and digital services company Deezer are among its many interests. Earlier in the year, it finalised a US$ 1.5 billion deal to sell half of its stake in global hospitality company Four Seasons, where it now has a 23.75% stake.

A Glencore subsidiary has pleaded guilty to seven counts of bribery in a London court, with the mining giant pleading guilty to seven counts of bribery and agreeing to pay more than US$ 1 billion to resolve similar claims with US and Brazilian authorities. The penalty details will be made next month, with the miner having already set aside US$ 1.5 billion to cover the investigations it has faced in the UK, US and Brazil. The case arose after the UK’s Serious Fraud Office said it had exposed “profit-driven bribery and corruption” across Glencore Energy UK’s oil operations in five African countries – Cameroon, Equatorial Guinea, Ivory Coast, Nigeria, and South Sudan. The SFO discovered that the company’s agents and employees paid bribes worth over US$ 25 million for preferential access to oil, with approval by the company between 2011 and 2016.

Over the past eighteen months, Airbus and one of its major customers, Qatar Airways, have been locked in a dispute after the airline complained about cracks in paintwork exposing in an anti-lightning mesh beneath, resulting in it grounding more than 20 of its A350 planes. The carrier has claimed that it is a maintenance issue and indicated that it will not take any further deliveries until the issue had been resolved; it has also revoked a separate contract for the delivery of the smaller A321neo jets. Now the case is to be taken to court in the UK in what could be a long-winded three-month trial to settle the dispute, with Judge David Kaksman saying that “I am in absolutely no doubt that this case should be tried as soon as is practically possible,” and “the costs for both sides are way over the top, in my judgment.” It is noted that Airbus has acknowledged quality issues but insisted the planes are safe and has continued to attempt to force the airline to take delivery of more planes as they are built. Other airlines continue to fly the A350, without grounding them, after European regulators said the paint problem did not affect their airworthiness.

There are reports that UAE-Qatar November/December airfares have surged ahead of the FIFA World Cup, with economy class fares jumping by nearly 1.9k%. It showed that a one-way air fare booked for 25 May would cost US$ 98 but that fare for 20 November would be US$ 1,937. It is expected that many football fans with tickets, (and only people with match tickets will be allowed into Qatar), will use Dubai as a base for a variety of reasons including the fact that there would not be enough accommodation options in Qatar. There are direct flights operated by flydubai, Etihad, Air Arabia and Qatar Airways  between the two Gulf countries and there are reports that Israel is requesting direct flights during the football extravaganza which runs from 21 November until 18 December. The first random selection draw for tickets attracted 23.5 million tickets, and successful applicants will find out whether they have been lucky enough on 31 May, with the biggest number of ticket applications coming from Argentina, Brazil, England, France, Mexico, Qatar, Saudi Arabia, and the US.

Later in the week, Flydubai confirmed that, as part of an agreement with Qatar Airways and other GCC carriers, it would be operating up to sixty special daily flights to Qatar as part of the one-day shuttle service to ferry football fans during the FIFA World Cup. The Dubai carrier will move 2.5k fans every day with Saudia, Oman Air and Kuwait Airways carrying 5k (in forty daily flights), 3.4k fans (forty-eight flights) and 1.7k (twenty flights) respectively. This is in addition to increased flights by Qatar Airways and the probability that Etihad and Air Arabia may also join the scheme. Good news for local football fans is that flydubai’s CEO, Ghaith al Ghaith, indicated that these shuttle flights are “not about making money” and that economy class return air fares will be much lower than that listed above. Tickets will only be open to FIFA World Cup ticket holders, with fans having to arrive five hours before kick-off and tickets will include on-ground transportation to/from stadia.

Although declining through the “Covid-period”, the gap, between the haves and the have nots, continues to head north with a study from The High Pay Centre, seeing the gap widening again this year now that Covid restrictions have eased markedly. It reported that pay ratios were widest in retail and lowest in media and financial services. The High Pay Centre’s most recent chief executive pay analysis said the average FTSE 100 boss was paid US$ 3.36 million, (GBP 2.69 million), in 2020. The figure was 86 times the average full-time UK worker but was a 17% drop from US$ 4.07 million, (GBP 3.25 million) in 2019. Across 69 companies that disclosed pay ratios in the first months of this year, the average chief executive to average employee pay ratio was 63:1 – almost double the ratio for the same group of companies in 2021, at 34:1. It seems a little incongruous that the BoE governor, Andrew Bailey, had already urged workers not to ask for big pay rises to try and stop inflation spiralling out of control. Perhaps he should look higher up the ladder at the fat cats at the top.

According to the EC President, there could be a deal on introducing a total EU-wide ban on Russian oil imports. Three weeks ago, Ursula von der Leyen, had introduceda phased-in embargo on Russian oil as part of a sixth round of sanctions, allowing some member nations six months to phase out purchases of Russian crude oil. This did not impress some land-locked countries, including Hungary, Slovakia, the Czech Republic and Bulgaria, who asked for tailor-made exceptions to have more time to eliminate several technical issues and further cushion the economic impact. It is noted that since all members have to agree to the resolution, Hungary may be playing ‘hard-ball’ and trying to capitalise on the oil impasse to force the approval of its recovery package. This week, Hungary’s Prime Minister Viktor Orbán raised the ante by requesting that the proposed oil embargo be excluded from next week’s EU summit, until the EC approved the country’s national recovery package, submitted a year ago.

In a move to help ease its crippling economic crisis, Sri Lanka has increased fuel and transport prices, by up to 24% for petrol and 38% for diesel, but the hikes are bound to have the opposite impact pushing the soaring inflation rates even higher; since October, petrol and diesel prices have soared by 259% and 231%. The price hikes will add to government revenues In the short-term, with the population being encouraged to work from home “to minimise the use of fuel and to manage the energy crisis”. Last month, the inflation rate jumped 12.3% from 21.5% to 33.8%. The economic crisis has been the result of many factors including the COVID-19 pandemic pummelling the tourism-reliant economy, rising oil prices, populist tax cuts by the government of President Gotabaya Rajapaksa and gross mismanagement.

A week after restricting wheat exports to ten million tonnes, the Modi government has done the same with the sugar trade so as to prevent a surge in domestic prices, after mills sold a record volume on the global market, and to ensure steady supplies in the domestic market. It has also requested that exporters notify the authorities for any overseas shipments between 01 June and 31 October. Benchmark white sugar prices in London rose 1% on the news. India is the world’s biggest sugar producer, (expected at 35.5 million tonnes this year), and the second biggest exporter behind Brazil.

For the 22nd straight month, Lebanon’s inflation posted a triple-digit increase, with April witnessing a monthly 7.1% rise and 206% over the past twelve months. Over that period, transportation costs were 492% higher, the health segment – 431%, water, electricity, gas and other fuels 409%, and food and non-alcoholic beverages rose 375%. Lebanon, which has the fourth highest debt-to-GDP ratio at 212% behind Japan, Sudan and Greece, has also seen its public debt rise to US$ 100 billion, or about 212% of GDP last year. The government is hoping to secure an initial US$ 3 billion rescue package from the IMF which is dependent on the future government putting in place various reforms approved by the outgoing Cabinet. Lebanon’s economy contracted about 58% between 2019 and 2021, with the GDP plummeting from US$ 52.0 billion to US$ 21.8 billion over that two-year period – the largest contraction on a list of 193 countries.

It seems that the former Australian Prime Minister has bequeathed a host of economic problems to his successor, Anthony Albanese, who won last weekend’s federal election for the Labour Party. Scott Morrison had been in charge since August 2018, with his Liberal Party, (in coalition) running the country since 2013, following six years of Labour rule.  Over the past nine years, and despite repeated promises to the contrary, his administration never produced a budget surplus and even managed to double the country’s debt in its first six years in government that had risen to US$ 590.1 billion, (AUD 834.0 billion), as the national debt stood at US$ 182.1 billion, (AUD 257.4 billion). The lucky country will probably have to face at least a decade of deficits and a national debt continuing to skyrocket and almost certain to top US$ 1 trillion within the next three years.

When the Liberal Party regained power in 2013, the Mining Tax Repeal Bill finally was passed, repealing the 2012 Mineral Resources Rent Tax, levied on 30% of the “super profits”, with a company having to pay when its annual profits topped US$ 53.1 billion, (AUD 75.0 billion). The Australian population lost a nest egg that would have been better spent on Australian health, education and other services, rather than much of it landing in the banks of foreign investors. A year later, Australia repealed the 2012 Gillard government’s carbon tax, after only nine months of the carbon tax. Over that period, it is estimated that Australian emissions from electricity generation fell by 5.4% and renewable electric generation spiked by 28%. To make matters worse, this repeal was replaced by a massive and inefficient subsidy, handing out billions of dollars to polluters in a scheme that now has been transformed into a carbon price. JobKeeper, a US$ 64.2 million scheme introduced at the onset of Covid-19, saw a large number of recipients unnecessarily receiving millions of dollars that they did not need. In addition, the country spent a further US$ 171.3 billion on additional Covid spending, as well as introducing the stage-three tax cuts, costing US$ 26.4 billion, last month. Just before the election, data showed the unemployment rate at just 3.9%, the lowest rate since 1974. However, the conundrum is, that with such low unemployment levels, why do real wages continue to head south as the gap between inflation, at 5.1%, and real wages, only 2.4% higher, continues to widen. The end result is a fall in real consumer spending at a time when inflation is only going one way – up – but the economy is heading in the other direction and slowing down.

Better late than never, the UK has introduced a 25% temporary tax on energy companies’ profits, (set to raise US$ 6.3 billion), as the government sought to raise funds for special household payments to offset the rising cost of utility bills. The tax is expected to remain in place whilst energy prices remain high. The Chancellor noted that “the oil and gas sector is making extraordinary profits, not as a result of recent changes to risk taking or innovation or efficiency, but as a result of surging global commodity prices, driven in part by Russia’s invasion of Ukraine.” All the country’s 8.4 million households will benefit from lump-sum payments worth up to US$ 822, on top of US$ 506 discounts on energy bills. These new payments will cost the Exchequer US$ 6.3 billion and was accompanied by more support for pensioners and people with special needs. The total package worth US$ 19 billion, funded in part by the exceptional levy on soaring profits enjoyed by the likes of BP and Shell, brings the full cost of addressing the crisis almost equivalent to the 2% of GDP the UK spends on defence. In a change of tack, it seems that finally the Johnson administration has to face reality and realise that the poorer sector of the country require immediate economic assistance and Rishi Sunak has to do Whatever It Takes!

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