Storm Clouds On The Horizon!                                               05 August 2022

The 2,247 real estate and properties transactions totalled US$ 1.44 billion during the week ending 05 August 2022. The sum of transactions was 255 plots, sold for US$ 338 million, and 1,510 apartments and villas selling for US$ 760 million. The top two transactions were for land in Hadaeq Sheikh bin Rashid, sold for US$ 29 million, and the other for US$ 25 million in Island 2. Al Hebiah Fifth recorded the most transactions, with 130 sales transactions worth US$ 85 million, followed by Jabal Ali First, with 40 sales transactions worth US$ 35 million, and Al Yufrah 2, with 26 sales transactions, worth US$ 8 million. The top three transfers for apartments and villas were all apartments – one sold for US$ 102 million in Marsa Dubai, another for US$ 94 million in Burj Khalifa, and a third for US$ 62 million in Business Bay. The sum of the amount of mortgaged properties for the week was US$ 311 million, with the highest being for land in Al Thanyah First, mortgaged for US$ 38 million. Sixty-eight properties were granted between first-degree relatives worth US$ 58 million.

In Q2, Dubai rental rates continued to head north, with quarterly and annual rises of 4% and 15% for apartments and 6% and 23% for villas. Asteco noted that demand for villas, with outdoor areas, and for high-quality apartments remained robust and there was a marked interest in villas, adjacent to the Expo site. It also indicated that “the positive benefits of Expo 2020, including infrastructure upgrades and the repurposing of the site, will no doubt be felt across a wide range of sectors for years to come (‘the Expo effect’).” Although it sees rental rates “remaining elevated” for the rest of 2022, growth is expected to slow, in line with an oversupply of units. CBRE reported slightly different rental increases than Asteco – with apartments up 21.2% and villas 24.7%. It noted that the highest average rentals for apartments and villas were in Palm Jumeirah (US$ 59.5k) and Al Barari (US$ 242.3k). JLL Mena, meanwhile, placed average rental rises at 19%.

Asteco posted that 6k new apartments were delivered in Q1 and a further 7k in Q2, with only 529 villas handed over in that period; most of the new deliveries were concentrated in ‘new’ developments, including Damac Hills, Dubai Hills Estate, Wasl Gate and Port De La Mer. JLL put the Q2 figure at 6.5k, with a further 35k to be added by the end of the year – this figure seems to be a little too ambitious. The uptick in consumer confidence in the Dubai property sector saw a series of new projects launched in H1, with further new releases expected in the coming months. It must be noted that Dubai is in the same world that is now being impacted by surging inflation, higher borrowing rates and a slowing global economy. It is not immune from these economic factors and there will be a property slowdown but hopefully not at the same level as in other developed economies.

When open in Q4 2025, Jumeirah Living Residences Business Bay will   be Jumeirah Group’s fourth branded residence in Dubai, following in the footsteps of Jumeirah Zabeel Sarai Royal Residences, Jumeirah Living World Trade Centre Residences and Jumeirah Living Marina Gate. The 35-storey residence will be one of six premium residential towers within the Peninsula development, on the edge of Dubai Canal, and will comprise eighty-two premium branded residences, including 2-5 B/R units, as well as a unique full-floor, five-bedroom penthouse located on the top floor. It will have concierge services, a residents’ lounge, a teenager lounge, with gaming amenities, and a co-studying area.

dnata has extended its six-year partnership with GOL Airlines to continue to provide a range of passenger, ramp and baggage services to Brazil’s leading low-cost airline that carries nineteen million passengers, on 133k flights, to twenty of the country’s airports. The Dubai company, one of the world’s largest air and travel services providers, is that country’s leading ground services provider, offering a range of passenger, ramp and baggage services to the airline. dnata has recently increased its investment in Brazil to become the sole shareholder of its local subsidiary, and currently serves more than fifteen airlines at twenty-nine airports.

The third auction of the UAE’s 1.5 billion dirham-denominated treasury bonds was oversubscribed 5.1 times. It is expected that there will be a further three auctions, all for US$ 409 million (AED 1.5 billion), before the end of the year which will see the government’s T-bonds issuance programme for 2022 reach US$ 2.45 billion (AED 9.0 billion). As with the two previous auctions, there were two tranches for US$ 204 million, (AED 750 million), each – one for two and the other for three-year notes. The prices were at a spread of a 16 basis points (bps) over US Treasuries for two years, and a spread of 15 bps over US Treasuries for three years.

Latest figures to 31 May see the value of gold reserves of the Central Bank of the UAE 1.63% higher at US$ 3.30 billion; at the end of 2019, the value was at US$ 1.09 billion, 31 December 2020 at US$ 2.44 billon and at US$ 3.25 billion on 31 December 2021.

Following recent rises in petrol prices, and despite continuing high energy prices, the UAE Fuel Price Committee has decided to allow them to drop in August; at the end of last month, prices were retailing at their highest level since they were liberalised in 2015. At theonset of Covid, prices were frozen by the Fuel Price Committee, but controls were removed in March 2021 to reflect the movement of the market.

August petrol prices all showed monthly decreases of 13%+:

• Super 98: US$ 1.098 – down by 13.0% on the month and 52.1% YTD from US$ 0.722
• Special 95: US$ 1.068 – down 13.5% on the month and 55.0% YTD from US$ 0.689
• Diesel: US$ 1.128 – down 13.0% on the month and 61.8% YTD from US$ 0.697
• E-plus 91: US$ 1.046 – down by 13.5% on the month

e& (formerly known as Etisalat Group) has posted a 2.5% rise in H1 consolidated net profits to US$ 1.34 billion, on the year, as revenue rose 3.8% to US$ 7.17 billion and EBITDA was flat at US$ 3.65 billion. The number of UAE subscribers topped 13.3 million in H1 2022 – an annual increase of 10%, with aggregate group subscribers up 2.5% to 160 million. The Board approved an interim dividend of US$ 0.109 per share.

Amlak Finance PJSC posted a H1 35.0% net profit hike to US$72 million, despite total income dipping 9.1%to US$ 87 million, as revenues from financing business decreased by 18.8% to US$ 69 million. The company recorded a gain of US$ 61 million on debt settlement arrangements and was able to reduce its debt burden by US$ 154 million, including Mudaraba instrument of US$ 33 million. Operating costs reduced by 4.7% to US$ 11 million, whilst amortisation costs fell 14.1% to US$ 20 million; it also recorded a US$ 27 million impairment reversal compared to a US$ 5 impairment reversal in H1 2021. Over the period, the profit distribution to financiers decreased by 15.2% to US$ 11 million.

Tecom posted a 15.8% rise in H1 revenue to US$ 269 million, driven by an increase in occupancy rates across its various properties, up 4% to 82%, and strong revenue growth from the business and value-added service segment, from its 7.8k customers. EBITDA came in 22.4% higher at US$ 197 million, attributable not only to revenue growth but also to improved operational efficiencies, as H1 profit was up 43.4% to US$ 117 million; Q2 net profit at US$ 65 million was 54.1% higher on the year and 24.7% on the quarter.

Although H1 revenue remained stable at US$ 27 million, Union Properties reported a marked decline in Q2 net profit at US$ 78k, compared to over US$ 7 million a year earlier. With the developer continuing to implement a revised turnaround strategy, to cut costs and boost profitability, following detection last October of forgery, abuse of authority and fraud, it has been weighed down by finance costs, relating to a US$ 16 million legacy debt, and having to revamp three of its existing business units — Edacom Owners Management Association, Uptown Mirdiff Mall and Al Etihad Cold Storage — into a single entity, Edacom Asset Management. Administrative and general expenses declined by 42% on the year to US$ 5 million in Q2, and by 32% on an annual basis to US$ 10 million in H1.

Dubai Aerospace Enterprise posted a credible 186% leap in H1 profit to US$ 140 million, as cash flows from operating activities were 36% higher at US$ 679 million. Noting that it has up to US$ 2.7 billion in available liquidity, DAE’s new capital commitments for aircraft purchases was US$ 750 million and that it had signed a new aircraft management mandate to acquire and manage up to US$ 1.75 billion of aircraft assets.

Amanat Holdings reported a 7.0% hike in adjusted H1 profits to US$ 18 million, a 6.8% increase on the year, and on an adjusted basis, excluding the prior year’s gain on sale and trading results from divested entities, it posted a 13.6% hike in revenue to total income of US$ 26 million. Its healthcare platform recorded a 70.6% jump in income to US$ 7 million, whilst Middlesex University Dubai saw income 13.2% higher to nearly US$ 10 million. Having bought out the remaining 49% stake in Khawarizmi International College, NEMA Holding (formerly Abu Dhabi University Holding Company) acquired 100% of Liwa College of Technology in H1 2022. Amanat’s Chairman Hamad Abdulla Alshamsi said that “with expansions underway across CMRC, MDX, NEMA, and Sukoon, we are excited for the phase ahead where we see Amanat capitalising on further growth opportunities in addition to deploying capital into assets that complement our existing platforms”.

The DFM opened on Monday, 01 August, 280 points (9.2%) higher on the previous three weeks and closed 21 points lower (0.6%) on Friday 05 August, on 3,317. Emaar Properties, up US$ 0.10 the previous three weeks, was down US$ 0.03 to close on US$ 1.47. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.69, US$ 3.76, US$ 1.60 and US$ 0.47 and closed on US$ 0.69, US$ 3.69, US$ 1.58 and US$ 0.46. On 05 August, trading was at 89 million shares, with a value of US$ 38 million, compared to 87 million shares, with a value of US$ 73 million, on 29 July 2022.  

By Friday 05 August 2022, Brent, US$ 9.07 (9.0%) higher the previous fortnight, lost US$ 16.55 (14.1%) to close on US$ 94.46. Gold, US$ 66 (3.9%) higher the previous fortnight, gained US$ 19 (1.1%), to close Friday 05 August, on US$ 1,792.

In a trade-off between slower economic growth, (which would normally see oil prices declining), and supply shortages (which normally have the opposite effect), energy prices steadied today after breaching their lowest level since the Russian invasion of Ukraine in late February. Brent, the global benchmark for two thirds of the world’s oil, was trading marginally higher at $94.46 a barrel. Last week has seen nothing but bleak news on the global economy with the likes of the UK forecast to enter five successive quarters of recession, and its GDP falling by as much as 2.1%, and the IMF once again lowering its global economic growth forecast, this time to 3.2%.

With less than four months to go to the FIFA World Cup, Airbus has revoked its entire outstanding order from Qatar Airways for A350 jets, severing all new jetliner business with the Gulf carrier. This is part of an ongoing dispute in which the Gulf carrier has argued that the scarred condition, over premature surface damage, of more than twenty new long-haul jets that the airline says could pose a risk to passengers and which the plane manufacturer insists are completely safe. The carrier, which was the A350 launch customer in 2015, has grounded almost half its fleet and is suing Airbus for at least $1.4 billion, and had refused to take delivery of more aircraft. By the end of June, there were nineteen outstanding orders from Qatar Airways, with a catalogue price of US$ 7 billion, and the latest complete cancellation comes six months after Airbus also revoked the whole contract for fifty smaller A321neo jets in retaliation for Qatar refusing to take A350 deliveries. The dispute is already set for the London law courts next June.

Looney by name and apparently looney by nature, BP chief executive Bernard Looney, having overseen a massive windfall Q2 profit of US$ 8.45 billion, told the world that he would donate US$ 487, from his own funds, to an unnamed charity, having said he was unaware that the UK government was offering direct financial assistance to help families pay their soaring energy bills this winter. His basic annual salary is only US$ 1.7 million. US$ 3.5 billion of the profit will be used to buy back the company’s shares and the dividend will rise by 10%. This is another classic example of the rich getting richer and the poor, poorer, with surging energy prices accounting for a large share of the current UK 9.1% inflation rate. Some analysts expect a typical UK household to pay over US$ 3.7k, until at least the end of next year which could result in extra millions living under the poverty line. BP plans to invest as much as US$ 22.0 billion, into the UK this decade, on fossil fuel extraction, renewable energy production and electric vehicle charging which will create thousands of jobs across the country.

Meanwhile, Shell has decided to give most of its 82k workers a one-off 8% bonus after the company reported record quarterly profits of US$ 11 billion, driven by high oil and gas prices. Shell has also said it would return billions of dollars to its shareholders. UN Secretary General Antonio Guterres has called for energy companies to face special taxes, saying it was immoral for firms to be profiting from the Ukraine war. He may be right for a change!

Because of revaluations in Aurora, Grab and Zomato, Uber reported a Q2 net loss of US$ 2.6 billion, (Q2 2021 – US$ 300 million), whilst revenue increased by 105% to US$ 8.1 billion. Its adjusted pre-tax income was US$ 364 million, compared to a US$ 509 million loss recorded in the same period last year, driven by a jump in gross bookings, up 334% to US$ 29.1 billion, as both mobility and delivery gross bookings rose by 55% to US$ 13.4 billion and 7.0% to US$ 13.9 billion. Having declined by more than 43% over the previous twelve months, its share value rebounded on the news climbing 15.3% to US$ 28.40 in premarket trading on Tuesday. Location-wise, revenue jumped 149% to US$ 4.9 billion, 99% to US$ 1.8 billion, 57% to US$ 481 million and 14% to US$ 810 million in US/Canada, MEA, Europe and Asia Pacific respectively.

​​​​​​​​​​​​​ In 2019, JD Sports paid US$ 110 million for Footasylum, and now three years later, it has sold the business, for only US$ 46 million, to private equity firm Aurelius, which owns Lloyds Pharmacy. Following a ruling by the UK’s Competition and Markets Authority, that the merger could lead to less choice and a “worse deal” for customers, it had no other alternative but to divest it. JD Sports has described the decision to block the takeover as “inexplicable” but admitted “inadvertently” breaking the rules over the sharing of commercially sensitive information, with both firms being fined almost US$ 6 million for the offence and failing to alert the regulator. JD has around 3.4k stores across twenty-nine countries, including 700 in the UK and Ireland, selling brands such as Nike, Adidas and Puma, whilst Footasylum has sixty-five stores across the UK, selling similar sportswear brands. The two companies have a shared history – JD Sports co-founder David Makin established Footasylum in 2005.

Some 1.9k workers at the UK’s biggest container port in Felixstowe are to strike for eight days in a dispute over pay, as from 21 August, with the Unite union indicating that the 7% pay offer was “significantly below” the rate of inflation. Unite noted that “both Felixstowe docks and its parent company CK Hutchison Holding Ltd are both massively profitable and incredibly wealthy. They are fully able to pay the workforce a fair day’s pay. The company has prioritised delivering multi-million pound dividends rather than paying its workers a decent wage.” Around half of containers brought into the UK are transported via the port which posted that it was “disappointed” and that it was “determined” to help workers tackle rising costs – whilst continuing to invest in the port.

The Reserve Bank of Australia has downgraded its economic growth forecast on the back of house prices falling, surging inflation, mortgage rate hikes and a dismal global outlook – and despite expecting unemployment to fall to a low of 3.25%, before rising back to 4.0% by the end of 2024. Despite this leading to a modest pick-up in wage rises to about 3.5% in 2023, the Reserve Bank still expects real wages to fall for at least the next year. After peaking at 7.75%, by the end of this year, inflation is still expected to be about 6.2% by the middle of next year, and 4.3% at the end of 2023, driven by further significant rises in retail electricity prices next year.

It has also scaled back its forecasts for household consumption, which accounts for about 60% of Australia’s economy, from 4.4% to 2.8%, as consumer sentiment approaches recessionary levels. It also notes that there are “downside risks” to its forecasts due to the economic slowdowns in China and Europe. The RBA has based its forecasts on an assumption that its cash rate would climb from its current level of 1.85% to hit 3.0% by 31 December –before nudging lower by the end of 2024. Its GDP forecast for the end of the calendar year has been cut by 25% to 3.0%, with the economy expected to grow just 1.75% for the next two years. Falling house prices, combined with the previous construction boom inspired by ultra-low interest rates, and the previous government’s HomeBuilder grant, will result in dwelling investment contracting 4.8% over 2024.

UK property prices have been defying the law of gravity by still moving northwards, despite the growing cost of living crisis; in June, Nationwide indicated that prices were only 0.1% higher on the month at US$ 330.1k, indicating a slowdown in growth, but 11.0% on the year. The main drivers behind these figures are the relatively strong labour market conditions and the limited stock of homes on the market. However, Thursday’s BoE announcement of a 50bp rate, pushing bank rates to 1.75%, will inevitably cool the market but by how much remains to be seen and it may take further cuts to see a major impact on the sector. The rate for a two-year 75% loan-to-value fixed-rate mortgage had already jumped YTD from 1.57% to 2.88% by June, (the fastest six-monthly increase since 1995), that could rise to about 3.1% by the end of the year. Another factor that will have a drag on the market would be a continuing surge in the cost-of-living squeeze, and, further down the track, the property market could take a battering if a recession occurs later this year.

The UK rate increase may prove to be good news for UAE investors wishing to buy UK property there, as economic conditions point to an inevitable slowdown, and more rate hikes. The overseas buyer will benefit from the double whammy of falling prices and a strong currency which will make UK prices more attractive. This week witnessed the BoE raise rates by 50 bp to 1.75% and issue a warning of a looming recession.

House prices slipped for the first time since June 2021 in monthly terms and the market is likely to weaken further as rates move higher. The annual rate of price growth slowed by 0.7% to 11.8%, having risen by 1.4% in June, and this comes after a two-year boom driven by the pandemic, the switch to working from home and historically low mortgage rates. Now when the major impact of Covid has largely become part of history, the working population is returning to office work and rates are moving higher, house prices will come under more pressure. Property website, Zoopla sees house price rises down to 5% from 8.3%, by the end of 2022.

The Bank of England has warned the UK will fall into recession as it raised interest rates by the most in 27 years, with the ominous forecast that the economy will contract in Q4 and keep shrinking until at least the end of 2023; at the same time, it expects inflation to top 13%, driven by soaring energy prices. After months of burying their heads in the sand, the BoE actually did something else – it warned that the country is facing a recession, maybe longer than the GFC of 2008, and maybe worse than economic slump of the 1990s. If this blog could see stagflation – the combination of a stagnating economy and high inflation – happening early last year, why did it not occur to the nine wise experts, on the Bank’s MPC, who dictate monetary policy? The UK population will take little solace from the Bank’s governor, Andrew Bailey, who he had “huge sympathy and huge understanding for those who are struggling most” with the cost of living. He also added that he knew the cost-of-living squeeze was difficult but if it didn’t raise interest rates it would get “even worse”; this could have been done in May 2021 and not have to wait for August 2022. The UK is going into recession sooner than many people think and there are Storm Clouds On The Horizon!