Today Was A Fairy Tale!                                                            08 July 2022

There were no reports available for the past shortened week, ending 07 July 2022, from Dubai Land Department but it could be a record week noting that Monday saw real estate transactions top US$ 1 billion.

Zoom Properties, one of the few consultancies who seem to get their figures right, have projected 2022 delivery of around 38k residential units, with supply being seen highest in areas such as MBR City, (which is experiencing a boom in new stock, including 1.5k units in Q1), Dubailand, Downtown Dubai, Business Bay, Dubai Creek Harbour, Al Jadaf, and JVC. 6.7k units were delivered in Q1, with a further 31k expected on the market before the end of the year. Average prices are 11.0% higher, split between villas (19.8%) and apartments (9.5%). It is hard to disagree with the consultancy’s forecast that the property market would continue its upward trajectory, despite the threat of the upcoming global recession.

With Dubai property prices still heading north at an impressive rate, it was no surprise to see a new record set for the most expensive home in the emirate. In March, a ten-bedroom custom-built Palm Jumeirah villa, with seventy metres of private beachfront, was sold for over US$ 76 million, (AED 280 million), easily beating the previous 2015 record of US$ 50 million (AED 185 million) for a Palm Jumeirah villa. It seems a certainty that the first AED 300 million villa will be sold by the end of the year, and probably well before then. The reasons for the local property boom are manifold and have been listed several times in previous blogs but the fact remains that demand outstrips supply at the top end of the market. Last month, Alpago Properties announced a development of six villas on Frond G of Palm Jumeirah, with prices ranging from US$ 33 million to US$ 82 million.

Knight Frank has indicated that 40%, equating to ninety-three homes of all US$ 10 million plus sales ever recorded in the emirate were in 2021 and in Q1 the total had already reached 32. Latest data shows that June recorded the highest month ever for Dubai sales value at US$ 6.18 billion – 54.9% higher than in June 2021. By the end of H1, 70.8% of the total sales volume of 2021 had been reached.

Dubai South Properties announced this week that Dubai South Bay, at the heart of The Residential District, will have over eight hundred villas, and townhouses (between 3 B/R – 5 B/R, with built up areas ranging from 2.9k sq ft – 4.8k sq ft), as well as two hundred waterfront mansions; the mansions, ranging from 5 B/R to 7 B/R will have built up areas of up to 13k sq ft. The development will also feature a 1 km-long crystal lagoon, more than 3 km of a waterfront promenade and multiple beaches. Located on Expo Road, the development will also be home to several world class amenities including a community shopping mall, a fitness complex, kids’ clubs, swimming pools, a water sports club, waterfront cafés and several parks. The launch date is fixed for September.

In a bid to give tenants more flexibility with their rental repayments – as well as to facilitate administration work for landlords – Dubai Land Department has signed a deal with Emirates NBD for rent payments to be made by direct debit and digitised using the Central Bank’s UAE’s Direct Debit System (UAEDDS). In another boost for the Dubai realty sector, individual investors from overseas, looking to purchase property in Dubai, will also be able to easily open non-resident savings accounts with Emirates NBD. The move is also in line with Dubai government’s vision of paperless payment systems and the Dubai 10X initiative.

Following yesterday’s federal cabinet meeting, HH Sheikh Mohammed bin Rashid Al Maktoum announced that Emirati citizens working in the government sector will be offered a full year’s leave on half pay should they wish to run their own businesses. He added that the move was to “encourage our youth to take advantage of the huge commercial opportunities offered by our national economy.” The meeting also discussed the Sheikh Zayed Housing Programme and the Dubai Ruler tweeted that “we decided to approve housing loans for citizens at a value of 2.4 billion dirhams (US$ 654 million) during the next six months, with 500 beneficiaries per month. Our goal is to complete 13k homes from the Zayed Housing Program in the coming years.”

After adding an extra 600 MW from the natural gas-driven Hassyan Power Complex, and a further 100 MW from the fifth phase of the current production capacity of the Mohammed bin Rashid Al Maktoum Solar Park, Dewa announced that its total production capacity of energy has risen by 700 MW to top 14.1k MW.  The latter, the world’s largest single-site solar park using the Independent Power Producer (IPP) model, currently produces over 1.6k MW and will top 5k MW on completion in 2030. Currently, Dubai’s clean energy mix represents 11.5% of its total energy production, which is expected to reach 14.0% by year end, and is in line with the Dubai Net Zero Carbon Emissions Strategy 2050’s 100% target.

This year’s Forbes list of the Top 100 CEOs in the region comprises twenty-five different nationalities, with twenty-seven of the total in financial services followed by eight from the telecom sectors and seven from both energy and logistics companies. Topping the list is Saudi Aramco’s Amin H. Nasser, followed by ADNOC’s Sultan Ahmed Al Jaber and HH Sheikh Ahmed bin Saeed Al Maktoum of Emirates Group. All three maintained their rankings for the second consecutive year. The survey used various guidelines including the CEOs’ impact that they have had on the region, their country, and the markets that they serve. Other Dubai-related CEOs in the list included Sultan Ahmed Bin Sulayem of DP World, Hana Al Rostamani, Group CEO, First Abu Dhabi Bank (FAB), Saeed Mohammed Al Tayer, Managing Director and CEO, DEWA,  Adnan Chilwan, Group CEO, Dubai Islamic Bank, Saif Humaid Al Falasi, Group CEO, ENOC Group, Fahad Al Hassawi, CEO, Emirates Integrated Telecommunications Company (du) and Arif Amiri, CEO, Dubai International Financial Centre.

This week, Emirates SkyCargo took delivery of its latest plane to maintain its fleet capacity at eleven Boeing 777Fs. The Dubai carrier saw a marked 15% growth in cargo loads, with annual tonnage topping 2.1 million tonnes, with 260k tonnes of perishables being transported, whilst both pharma and valuable goods both posted 17.0% growth. With the air cargo business booming, the local airline has “been flat out since the pandemic began”. Most markets are experiencing a surge in demand, including China where Emirates will now have an additional four freighter flights every week, equating to 400 tonnes of cargo, with Shanghai, Beijing and Guangzhou being served by six, two and four direct flights. The airline is also looking at increasing frequencies to Hanoi, Sydney and Nairobi, with the fleet recording 950 charter flights in the year ending 31 March 2022. Plans are also already underway to convert ten passenger 777s into freighters, boosting the cargo fleet to 21 by the end of 2026.

Dubai Multi Commodities Centre has posted its best ever half-yearly performance figures with a 19% hike in registration numbers on the year to nearly 1.5k, including the 323 new members registering last month; DMCC is now home to over 21k companies. China and India accounted for over 20% of new companies, with 40% of new companies originating from Europe and South America in H1, spurred on by the free zone’s recent roadshows in the UK, Spain, Turkey, Poland, Brazil and Colombia. There was on-going interest in the DMCC Crypto Centre, and high volumes of trade for a range of commodities, predominantly diamonds, (with volume up 36% on the year to a value of US$ 11 billion), tea, and coffee.

FinTech start-up YAP has raised US$ 41 million in a bid to expand into new markets and enhance its technology offerings.  The local digital banking app, launched in 2021 in partnership with RAKBank, has more than 130k signed-up users. This latest fund round, led by Saudi Arabia-based investment company Aljazira Capital, saw interest from investment conglomerate Abu Dawood Group, Saudi Arabia’s Astra Group and Dubai-based private equity business Audacia Capital. YAP has also received regulatory approval in Pakistan and Ghana and plans to launch in Egypt and Saudi Arabia.

After “successfully through a challenging period” of five years, Michael Davis has resigned as CEO of NMC, the largest private healthcare provider in the UAE; he is expected to stay on until the end of the year to help the board with “a smooth leadership transition”. NMC Healthcare PLC entered administration in April 2020 and its thirty-four operating companies subsequently filed for voluntary administration in ADGM five months later. The company had been established by BR Shetty and had been subject of fraudulent activity by the then board and senior management. Joint administrators Alvarez & Marsal worked closely with creditors and the new management team at NMC led by Davis to design and implement a three-year business plan, which saw the group exit from administration last March, making its companies subsidiaries of a new company named NMC OpCo Ltd.

After its IPO was twenty-one times oversubscribed, the TECOM Group made its debut on the DFM this week, opening on its first day of trading at US$ 0.728 (AED 2.67). By the end of the shortened trading week, it had dipped (12.7%) to US$ 0.635 (AED 2.33).

Union Properties, which reported losses last year, (US$ 263 million) and in Q1, (US$ 55 million), has announced the completion of operational changes as part of its turnaround strategy which will benefit all stakeholders including homeowners, residents and shareholders. The developer has merged three of its business units – Edacom Owners Association Management, Uptown Mirdif and Al Etihad Cold Storage – under Edacom in a move that is expected to see cost savings of US$ 1.91 billion this year alone. The loss last year was attributable to amending the value of property which had been “inflated in prior years”, after the SCA had filed a complaint against its senior executives in October, accusing them of forgery, abuse of authority, fraud and damage to the interests of the company. The developer has also started the design and engineering work for major infrastructure upgrade projects within Motor City.

The DFM opened on Monday, 04 July, 300 points (8.6%) lower on the previous four weeks, closed 93 points (2.9%) down on Thursday 07 July, on 3,109. Emaar Properties, US$ 0.02 higher the previous week, shed US$ 0.02 to close on US$ 1.40. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.69, US$ 3.49, US$ 1.54 and US$ 0.45 and closed on US$ 0.69, US$ 3.23, US$ 1.48 and US$ 0.42. On 07 July, trading was at 104 million shares, with a value of US$ 81 million, compared to 38 million shares, with a value of US$ 41 million, on 01 July 2022. The bourse will open on Tuesday 12 July after the Eid Al Adha break.

By Friday 08 July 2022, Brent, US$ 12.62 (10.2%) lower the previous fortnight, lost US$ 4.37 (4.0%) to close on US$ 107.08. Gold, US$ 48 (2.6%) lower the previous fortnight, shed US$ 72 (4.0%), to close Friday 08 July, on US$ 1,741.  

JP Morgan analysts have managed to frighten some economists by warning that if Russia reduces its crude production by three million bpd, it could push prices to US$ 190 but that price could rise to US$ 380 if production was cut by five million barrels. If the G7, and other leading nations, continue to introduce measures such as a price cap that is disagreeable to Vladimir Putin, he would not be averse to retaliate by reducing exports. If this were to happen, these measures would probably harm the global economy more than the Russian one especially in the current climate of a very tight global oil market, when supply is limited.

It has been reported that more than five million barrels of oil, that were part of a historic US emergency reserves release to lower domestic fuel prices, were exported to Europe and Asia last month, even though US petrol and diesel prices hit record highs. Such moves will have a negative effect on US efforts to reduce domestic energy prices, as Joe Biden continues to call on gasoline companies to cut their prices. It is estimated that one million bpd are being released from the US Strategic Petroleum Reserve which has fallen to its lowest level since 1986. US crude inventories are the lowest since 2004 as refineries run at near peak levels.

By this morning, Bitcoin had had its best weekly gain since last October, as global markets returned to somewhat of a risk appetite. Trading at almost US$ 21.8k, Bitcoin is up 13% for the week, and with the likes of Ether, Avalanche and Solana also performing strongly, the overall cryptocurrency market value has returned to an overall market value in excess of US$ 1 trillion. Despite all the recent razmataz, Bitcoin is still down 50% this year, not helped by monetary tightening and a string of defaults in the digital asset sector. The latest news that bankrupt broker Voyager Digital is more than likely to default on payments to clients will do nothing to boost investor sentiment in the sector.

Ramesh “Sunny” Balwani, who with his then girlfriend, Elizabeth Holmes, has been found guilty of deceiving investors as part of a plot that claimed their company, Theranos, had a device that could detect hundreds of diseases, including cancer and diabetes. Holmes had founded the start-up when she was only nineteen wanting to create a cheaper, more efficient alternative to traditional blood testing and later claiming to have developed technology capable of testing for a range of conditions, by utilising just a few drops of blood. Along the way, the company managed to raise US$ 945 million from a range of high-profile investors, including Rupert Murdoch and Walmart’s Walton family. At one stage, the company was valued at US$ 9.0 billion but was brought down to earth when a Wall Street Journal investigation found holes in its testing methods and technological capabilities. Holmes was found guilty at a separate trial in January, and both will be sentenced by a judge later in the year. The two could get up to twenty years incarceration, whilst Balwani could end up paying millions of dollars in restitution payments to his victims.

It seems that Dave Calhoun, Boeing’s CEO, has indicated that it could cancel the 737 MAX 10 if regulators fail to certify the jet before new crew alerting system standards take effect this December. The Federal Aviation Administration has been taking longer to approve Boeing planes after criticism of the agency in the wake of two fatal crashes of earlier versions of the 737 MAX that left the plane grounded globally for more than a year. Eighteen months ago, Congress passed a law requiring the regulator to only certify planes equipped with a flight crew alerting system designed to help pilots prioritize warnings and advisories activated during flight. However, it appears that the alerting system in the 737 MAX 10 shares the traits in the earlier MAX planes and does not meet the new standards. This system requirement will take effect on 27 December 2022, effectively establishing a two-year exemption for jets already in the certification process. The requirement can be extended only by new US legislation, and Congress has been highly critical of Boeing in the past.

To try and ameliorate recent UK air travel disruption, BA has announced that it will cancel some eight hundred flights over the summer break, impacting some 105k holidaymakers. Both Heathrow, (‘losing’ 76k seats) and Gatwick (29k seats) will bear the brunt of the cancellations to more than seventy locations including Malaga, Ibiza, Palma, Faro and Athens. It hopes that this move will reduce last-minute cancellations while staffing shortages and long queues continue, “as the entire aviation industry continues to face the most challenging period in its history”.

Many of the budget and charter carriers have been highly critical of the state of UK airports with Jet2 coming out this week saying that it was directly affected by “inexcusable” wider disruption across the airline industry and its suppliers. It also noted that passengers have been hit by flight delays, cancellations, long queues, baggage handling problems, and a lack of onboard catering supplies. Furthermore, the budget carrier went even further calling customer service, long queues for security, and a lack of staff and congestion in baggage handling “atrocious”. The airline also noted that its flight schedule has been known for months and that “many suppliers have been woefully ill‐prepared and poorly resourced for the volume of customers they could reasonably expect”.

The ECB is going into battle with the banks that they had lent US$ 2.2 trillion at ultra-low rates to avert a credit meltdown as Covid-19 struck in Q1 2020. But now the environment has changed, and rates have started to head north so much so that banks could be in for a US$ 24 billion bonanza pay-out. All that they need to do is to place the loans back on deposit at the central bank. But the ECB is wary that whilst businesses and households are getting hammered by soaring inflation and higher rates, it will be “giving” taxpayers’ money to these financial institutions, with the bounty also extending to senior management, as bonuses, and investors, as dividends. There is every chance that most of the ECB’s initial funds to banks will remain as bank deposits rather than be utilised for loans.

Singapore-listed cryptocurrency hedge fund Three Arrows Capital is seeking US court- protection from creditors under Chapter 15 of the country’s Bankruptcy Code which is used by non-US companies to block creditors who want to file lawsuits or tie up assets in the US. 3AC is seeking liquidation attributable to the slump in the cryptocurrency which has badly impacted the sector and had left many related companies also struggling for survival. It is reported that the Singapore authorities have claimed that 3AC had exceeded its assets threshold and providing false information.

As expected, Elon Musk has finally announced that he is no longer interested in acquiring Twitter for which he agreed to pay US$ 44 billion in April; he alleges multiple breaches of the merger agreement, including not providing sufficient information on the number of spam and fake accounts. He had requested evidence backing the company’s assertion that spam and bot accounts comprised less than 5% of its total users. Twitter will take legal action to enforce the agreement, and even if it loses the Tesla chief will have to pay a US$ 1 billion break-up fee and possible lawsuit by opting out. Some other reasons why he may have pulled out from the deal include the fact that he paid a hefty premium on the market value, (and since then share values for large tech companies have declined markedly), as well as he wanted to cash in on selling some of his Tesla shares at a higher market price.

Q2 saw Tesla miss its delivery target of 261.2k vehicles, managing 254.7k, which ended its two-year streak of quarterly gains; the main driver behind the fall was production being impacted by a Covid-related shutdown at its factory in Shanghai. Although the figures were more than the 201.2k units delivered in Q2 2021, they were well down on the previous quarterly return of 310.0k. The immediate outlook sees more volatility with the EV maker facing “ongoing supply chain challenges and factory shutdowns beyond our control”, and Elon Musk warning staff of a “very tough quarter” . The enigmatic Tesla chief noted earlier in the year that he expected production in the third and fourth quarters to be “substantially higher” and that Tesla was on track to expand production to more than 1.5 million vehicles in 2022.

The situation in Sri Lanka just gets worse with energy minister, Kanchana Wijesekera noting that the nation only had enough petrol left for less than a day under regular demand, and that

its next petrol shipment was not due for more than two weeks. The estimate is that the island nation had only 12.8k tonnes of diesel and 4.1k tonnes of petrol left in its reserves, and that although a shipment of diesel was expected to arrive at the weekend, the country did not have enough money to pay for planned fuel and crude oil imports. Although US$ 587 million is needed to pay for its scheduled shipments, the central bank could only supply US$ 125 million for fuel purchases; it still owes US$ 800 million to seven suppliers for purchases it made earlier this year. To make matters worse, inflation is at record highs and there are acute shortages of fuel, food and medicines. There may be some good news on the horizon as last week, the IMF concluded a fresh round of talks with Sri Lanka over a US$ 3 billion bailout deal.

Turkstat confirmed that Turkey’s June inflation rate hit a two year high of 78.6% and was nearly 5% higher month on month, driven by a depreciating currency and soaring prices, particularly in the energy and commodity sectors. Since last December, Turkey’s inflation has risen more than 42%. Of the June figures, producer prices rose about 138% annually while food prices surged 93.9%, on an annual basis, transport rates, furnishing/household, clothing/footwear, education, health and communications saw increases of 123%, 81.0%, 27%, 28% 39% and 24%. More of the same is forecast for the coming months, whilst interest rates will probably not rise, in line with President Recip Tayyip’s contrary economic policy, and stay at 14%. Such policies are the main reason why the lire has lost 20% in value to the greenback and become the worst performing currency in emerging markets this year.

It now seems likely that the Australian economy will be in recession territory next year, driven by higher interest rates and slower economic growth; (a recession is defined by two consecutive quarters of negative economic growth).  The Australian stock market is down over 10% from its recent all-time high, whilst latest data indicates the sharpest slowdown in the property market in thirty years. The good news is that the downturn will be a short-lived aberration and should be followed by a robust recovery but only after inflation starts its decline from a probable 7.0% high.

In June, the US economy created 372k jobs, with employment growing by far more than forecast, as unemployment rates remained flat at record lows of 3.6%. This is just one factor that points to an interest rate hike, probably as early as next week, and further tightening by the Fed. Even with the US inflation rate moving steadily to double digit levels, the economy contracting 1.6% in Q1, the equity markets slowing and the Fed hiking rates by 75 bp last month, the US job market remains tight, suggesting still-intense wage pressures. It appears that these impressive job figures contrast with many other economic indicators and that a recession could be on the horizon.

According to the Food and Drink Federation, there will be “relentless” increases in the UK price of food which may not hit their peak until next year, and that it usually takes 7-12 months for producers’ costs to reach shop shelves. The body’s head commented that prices would “absolutely” get worse before they get better, and that “the peak could well be into next year and that prices could well rise some way above 10%”; in May, food and drink price inflation rose to 8.7%. In a similar vein, the Institute of Grocery Distribution, which provides analysis to major grocers, has predicted price hikes topping 15%, as household staples such as bread, meat, dairy, fruit and vegetables become more expensive. Prior to the Ukraine crisis, food and drink manufacturers had already seen costs rise during the pandemic due to supply and labour shortages – but the war has exacerbated the situation.

The real estate consultancy Altus Group estimated that over the past decade the number of pubs in England and Wales has fallen by 15.0% to 40.0k – its lowest level on record. In 2021, four hundred pubs closed for the last time, with a further two hundred calling time in H1. It seems that in 2019, the number of pubs rose but Covid put an end to that, with lockdowns forcing pubs to shut or implement strict social distancing rules. Now it is not Covid that is causing concern for the publicans but a triple whammy of soaring prices, increased taxation and higher energy costs. On top of that there are other factors in play including younger people drinking less, supermarkets selling cheaper alcohol and the industry being too heavily taxed. According to the British Institute of Innkeeping and UK Hospitality, only 37% of hospitality business is making any profit.

A fairly recent addition to the economic lexicon is a SPAC, (special purpose acquisition company), a company without commercial operations and formed primarily to raise capital through an IPO or the purpose of acquiring or merging with an existing company. Now it is reported that UK companies, that have gone public via a Spac listed since 2020, have lost on average 62% of their value, with the biggest loss being EV company Arrival that has tanked 93% of its value since its March 2021 Spac deal, followed closely by used car dealer Cazoo whose shares have lost 92% since its debut last August. Most of the UK companies that decided to list in the US have lost on average 72% in value. There is no doubt that Spacs have quickly lost their gloss, with many projecting initial forecasts too good to believe.

The political mess in the UK saw sterling drop even further against the US dollar, and on Tuesday it was trading at 1.1899 – its lowest level in over two years, having dropped up to 1.8% on the day following news that Home Secretary Sajid Javid and Chancellor Rishi Sunak had “jumped ship”, joined by up to forty more junior resignations. UK stocks and sterling rallied yesterday, after Boris Johnson confirmed he would step down, ending months of political uncertainty in the world’s fifth-largest economy. ‘Borexit’ was an accident waiting to happen after months of political scandals and uncertainty that eroded public confidence in the Johnson government. There was little he could do with surging food prices and massive energy hikes as this was a global problem with most advanced economies failing to get to grips with the problem. In May, inflation in the UK hit an annual rate of 9.1% – a new forty-year high. On Wednesday, the BoE reassured the markets that it would quash inflation before it becomes rampant in the system – perhaps it should have addressed the issue more seriously at least twelve months earlier.

Within three days of stabbing his mentor in the back, Rishi Sunak has come out as a candidate for the number one job with a very slick video, as he promises to restore trust in the government. One has to ask what he has been doing since he accepted the Chancellor’s job in February 2020 taking over from another opportunistic jumper, Sajid Javid; he lost that position after only seven months when he refused No 10’s. orders to replace his advisers with those chosen by the Prime Minister. He had been appointed following Johnson’s election victory despite being a prominent supporter of the unsuccessful ‘Britain Stronger in Europe’ campaign for the UK to remain in the EU; he finished in fourth place to Johnson in the 2019 leadership contest. Then there is Nadhim Zahawi, previously a Johnson supporter, who was appointed to replace Rishi Sunak as Chancellor on 05 July, only to call for the Prime Minister’s resignation two days later on 07 July. This week has seen Whitehall and these   three and many more ministers acting like rats fleeing a sinking ship.

Many would have been surprised by former FIFA president Sepp Blatter and vice-president Michel Platini both being found not guilty, following their fraud trial in Switzerland, relating to a US$ 2 million payment made by Blatter to the ex-French footballer. They claimed that the 2011 money transfer was a belated payment for Platini’s advisory work for FIFA some ten years earlier. In his testimony, Blatter said he asked Platini to be his adviser when he was first appointed president of football’s world governing body in 1998. He said Platini wanted US$ 1 million per annum but told him FIFA could not afford that fee, so they settled on US$ 300k, with the outstanding total to be paid at a later date. Platini had stopped working for FIFA in 2002 but did not pursue the payment until 2010, telling the court he had not needed the money at the time of his departure, when – according to Blatter – the world body was in any case “broke”. It seems that Platini heard that two former employees had received substantial payments and approached FIFA, who he said told him to send an invoice. He did so in January 2011, with the money paid ten days later after approval by Blatter. It does seem a very odd arrangement and a surprise to many that these two vagabonds got away such a story. Today Was A Fairy Tale!