What A Shambles!

What A Shambles!                                                            16 September 2022

The 2,594 real estate and properties transactions totalled US$ 2.43 billion during the week ending 16 September 2022. The sum of transactions was 227 plots, sold for US$ 1.19 billion, and 1,560 apartments and villas, selling for US$ 937 million. The top two transactions were for land in Madinat Al Mataar, sold for US$ 269 million, and the other for US$ 71 million in Al Yufrah 1.  Al Hebiah Fifth recorded the most transactions, with 66 sales transactions, worth US$ 60 million, followed by Naad Al Shiba First with 39 sales transactions, worth US$ 50 million, and Jab Ali First First, with 33 sales transactions, valued at US$ 37 million. The sum of the amount of mortgaged properties for the week was US$ 254 million, and 145 properties were granted between first-degree relatives, worth US$ 56 million.

According to the latest Moody’s Investors Services, the credit quality of the UAE property companies will remain stable until at least the end of 2023, driven by high oil prices and a bounce-back in the services sector which has lifted consumer confidence. All their rated companies have enough liquidity to cover debt maturities for the next eighteen months. This year, ratings of local Moody’s-rated real estate companies have surged this year, with the upward momentum set to continue, despite rising inflation and interest rates moving higher at a pace. Moody’s expects off-plan sales to remain buoyant, with a ready market for new projects, especially the high-quality ones. Many of the buyers will be high net worth individuals who are less sensitive to rising rates. Although the pace of growth will inevitably slow, CBRE reported July year on year prices 10% higher – with villas and apartments recording growth levels of 19% and 9% respectively; in that month also, Property Finder posted that Dubai recorded the highest number of sales transactions in the past twelve years.

CBRE reported that last month, average villa and apartment pries were 15.8% and 7.7% higher on the year and 0.3% and 0.5% on the month, as transaction values decreased, despite the global economy slowing ahead of a recession. August saw total monthly volumes at nearly 9.3k – the fifth highest monthly return on record – and more of the same on the cards for this month. There seems a trend that, with rising rents, many tenants are considering buying their own property and taking advantage of fairly low fixed rates before they move inevitably higher.

Meanwhile, Valustrat noted that Dubai August property prices experienced their slowest monthly growth rate in eighteen months. Apartment prices, in typically popular areas such as Dubai Marina and Jumeirah Lakes Towers, fell, as they did in the villa segment in Jumeirah, Jumeirah Golf Estates and District One. However, on the apartment side, there were 4.8% increases seen in Remraam and Dubailand Residence Complex, whilst villas in Falcon City of Wonders also registered a similar price increase; the average villa price in Dubai came in at a slower – but still positive – 1.3% on the month. Prime apartment areas still continued to move higher, with Jumeirah and Palm Jumeirah registering monthly price increases of 3.4% and 2.0%. The news was no so positive for apartments in Dubai Marina and JLT – and for villas in Jumeirah, Jumeirah Golf Estates and District One. – where prices dipped. For apartments, Jumeirah registered the highest average sales rate at US$ 586 per sq ft while in the villas segment, and The Palm Jumeirah registered the highest average sales rate at US$ 978 per sq ft.

So as to provide 15.8k homes for Dubai nationals over the next four years, Sheikh Hamdan bin Mohammed has launched an integrated housing plan, following directives from his father, HH Sheikh Mohammed. Dubai’s Crown Prince commented that “our objective is not only to provide homes for nationals, but also to develop integrated residential communities, provide a high quality of life and create a social system that ensures family stability”. It is estimated that construction works that are underway on several housing projects are worth US$ 463 million.  Last September, the Dubai Ruler launched a historic budget of US$ 17.7 billion, as part of his twenty-year national housing programme; over the past twelve months, housing loans worth US$ 1.78 billion have been approved, along with the 4.8k approvals that have also been provided to date.

Cigna ranked the UAE as the top country in the region, and tenth in the world, when it came to expatriates relocating in a survey covering all 197 countries in the world. For the size of the exercise – and with 1k interviewees in the UAE – it seems a little shallow to survey only 11.9k people. UAE scored 68.2 on the overall well-being index, significantly above the global average of 62.9, followed by the US, UK, China, Spain and Australia. Interestingly, the average length of stay for foreign workers in the UAE is 4.4 years, compared with the global average of 3.2 years. The latest 360° Global Well-Being Survey indicated that 4% of expats around the world would like to live in the UAE because of its impressive economic rebound, progressive policy changes, talented labour pool and the introduction of a wide range of different visas.

A report by Henley & Partners paints a bright picture for Dubai’s future, with the emirate posting an 18% H1 hike in high net worth individuals (HNWI) to over 65k millionaire residents; it is now ranked as the 23rd most popular city in the world for HNWIs. Dubai is benefitting from a relatively strong economy, driven by the likes of financial services, oil and gas, real estate, travel and tourism, technology, and healthcare industries. Meanwhile another report by New World Wealth had slightly different figures noting 67.9k HNWIs at the end of June, placing Dubai as the richest city in the MEA and the 29th wealthiest in the world; it is also home to 202 centi-millionaires (those with net assets of US$ 100 million or more), and thirteen billionaires. Furthermore, it is reported that the UAE is expected to overtake countries, like US and UK for the world’s wealthy, by attracting the largest net inflows of millionaires globally this year.

Sheikh Hamdan bin Mohammed has launched the Dubai Research and Development Programme to create new economic opportunities and support strategic sectors in the emirate, noting that “R&D is key to achieving Dubai’s futuristic vision for a robust knowledge-based economy.” The programme pointed to four priority areas – health/well-being, environmental technology, smart built infrastructure/space and augmented human-machine intelligence. In July, a higher committee was established focussing on future technology and digital economy in a bid to further enhance Dubai as a global hub for the future economy. Its main target was to help shape the future of AI by investing in the metaverse and establishing partnerships to boost the emirate’s digital economy.

This week has seen another milestone in the history of the new Etihad Rail, with the connection of its main line with the UAE’s largest inland freight railway terminal in the Industrial City of Abu Dhabi (ICAD) in Musaffah. The plan will see this become the logistics hub for heavy industries, with twenty-two buildings, spanning more than 2.7 million sq ft on completion, and handling more than 20 million tonnes of cargo per year. This latest development is part of Stage Two of the UAE’s national railway network, extending from the borders of Saudi Arabia to Fujairah.

The UAE became one of the first countries in the world to introduce a digital value-added tax refund scheme for tourists, with the Federal Tax Authority saying it would cut down on paperwork and speed up reclaimed VAT for departing tourists. The process is integrated electronically between retail outlets and the tax refund scheme, with Planet Tax Free appointed the operator of the tax refund system for tourists in the UAE. Retailers will now be able to generate e-receipts, and the data for VAT refunds will be available even before the tourist arrives at the various airports and ports where they can access more than one hundred self-service kiosks available at departure points.

With news that Salik Company will issue 24.9% of its total issued share capital, in an initial public offering on the DFM, Dubai’s toll gate operator is valued in the region of US$ 4.0 billion (AED 15.0 billion). There will be 1.867 billion shares on offer, priced at US$ 0.545 (AED 2.00) per share, sold by the selling shareholder, the Dubai government, who will retain 75.1%. Dubai’s exclusive toll gate operator posted that there will be three tranches – Individual Subscribers, Professional Investors and Eligible Employees. The subscription period opened on 13 September 2022 and will close on 20 September for UAE Retail Investors and a day later for Qualified Investors. Two entities – Emirates Investment Authority and Pensions and Social Security Fund of Local Military Personnel – will each have 5% of the IPO reserved. Dividends are expected biannually and Salik expects to pay out 100% of the net profit, after deduction of statutory reserve.

The DFM opened on Monday, 12 September, 102 points (3.0%) lower on the previous fortnight, gained 128 points (3.8%), on Friday 16 September, to 3,489. Emaar Properties, US$ 0.03 lower the previous week, gained US$ 0.11 to close the week on US$ 1.76. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.70 US$ 3.50, US$ 1.58 and US$ 0.45 and closed on US$ 0.71, US$ 3.54, US$ 1.64 and US$ 0.47. On 16 September, trading was at 158 million shares, with a value of US$ 144 million, compared to 61 million shares, with a value of US$ 45 million, on 09 September 2022.  

By Friday 16 September 2022, Brent, US$ 7.96 (5.3%) lower the previous fortnight, dipped a further US$ 1.49 (1.6%) to close on US$ 91.35.  Gold, US$ 5 (0.3%) higher the previous week, was US$ 43 off (2.5%), to close Friday 16 September, on US$ 1,685.  Raising interest rates usually indicate lower gold prices.

The International Energy Agency has cut its forecast for global oil demand by almost 5% in September to two million bpd, attributable to renewed Chinese Covid lockdowns and the global economic slowdown. It appears that more oil is hitting the market, as it is estimated that in the six months to August an extra 180 million barrels were released from government stocks, with a further 52 million barrels anticipated over the next two months. IEA estimates that OECD industry stocks rose by 43.1 million barrels to 2.705 million barrels.

Qantas shares bucked the trend, (as the Australian share market ended last week higher, at 6,894 points, including NAB and ANZ after raising mortgage interest rates) by losing 0.2%. The carrier is still in a loss position, despite a 54% increase in revenue, with a reported US$ 591 million loss, compared to a US$ 1.16 billion deficit in the year ending 30 June 2021. Despite the negative return, chief executive Alan Joyce’s pay packet returned to its pre-pandemic base pay level, with many stakeholders calling for his head; the 56-year-old had worked at Aer Lingus for eight years before joining Ansett Australia in 1996 and joined Qantas four years later before being appointed as its CEO in 2008. There is no doubt that the airline is facing turbulent time on three fronts – delayed planes, cancelled flights and shaky service – and it would appear that the Irishman may be running out of luck.

Lufthansa announced that the German government has completely sold its stake in the national airline that it acquired in a US$ 9.0 billion state aid package at the onset of the pandemic, when global airlines were grounded. Earlier it had divested 13.8% of its shares and this week sold its remaining 6.2% stake for US$ 1.07 billion, making a tidy profit of US$ 761 million. Lufthansa’s CEO, Carsten Spohr noted that “the stabilisation of Lufthansa was successful and is also paying off financially for the German government and thus for the taxpayer.” In August, the carrier announced Q2 profits of US$ 259 million, following losses of US$ 6.71 billion and US$ 2.20 over the two preceding years.

Latest figures seem to indicate that prices in the second-hand luxury watch market may be on the mend with consultancy WatchCharts noting that Rolex resale prices, fell by 1.84% earlier in the month, from August, a slower place of decline following a summer slump of at least twice that rate. The index had shown price declines in June, July and August of 5.9%, 3.5% and 5.1%. The Subdia50 index was more bullish pointing to a 1.2% rise, over the past thirty days, in prices of the fifty most-traded luxury watches. It has been a rollercoaster ride for the market, which had peaked in March, when some prices were 35% higher on the year, before tanking, with signs, some months later, of the market having bottomed out. Some analysts blame the collapse in cryptocurrency prices, whilst others point to dealers trying to get rid of overstock. Those who thought that just buying a luxury watch was a safe bet have had their fingers burnt.

This week, the European General Court has largely upheld a US$ 4.1 billion record fine, levied in 2018, against Google for using the Android platform to cement its search engine’s dominance. The court decided that the tech giant had breached its laws by forcing Android phone-makers to carry its search and web browser apps in order to access the Google Play Store, (which Google had acquired for US$ 50 million in 2005 and that now powers roughly 70% of the world’s mobile phones). Since 2018, Google has changed its terms and conditions.

Latest data from research firm Kantar confirms that Aldi has taken over from Morrisons to become the fourth-largest UK supermarket, helped by the fact that consumers are turning to such discounters to manage their budgets, as food price increases edge well into double digit territory, reaching 12.4% last month; food inflation was climbing at its fastest pace in over forty years, with milk, butter and dog food prices rising especially quickly. It appears that shoppers are also cutting back on spending, by buying more own-brand products, with sales of the very cheapest value own-label products up by a third over the past twelve months.

Reports indicate that Goldman Sachs is expected to lay off hundreds of workers, with its chief financial officer, Denis Coleman, having noted earlier that “we have made the decision to slow hiring velocity,” as it cuts expenses in the face of worsening economic conditions. The investment bank had reported a Q2 48% profit slump, with revenue down 41% to US$ 2.1 billion, in an economic environment of surging inflation, rising interest rates, and the war in Ukraine.

This comes at a time of a broad sell-off in U.S. stocks on Tuesday driven by news that inflation had moved a lot higher than expected; this disappointed the market and ensured that the Federal Reserve may not be able to consider cutting back its policy tightening in the immediate future. All three major indices – S&P 500, Nasdaq Composite and Dow Jones – fell to two-year lows and closed the week at 3,873, 11,448 and 30,822, with interest-rate-sensitive tech and tech-adjacent market leaders, led by Apple Inc, Microsoft Corp and Amazon.com Inc among the biggest losers. It seems likely that this data will make the Fed move rates higher – and quicker – in the near future.

Rather belatedly, this week the World Bank came out with a report that most observers had already known – that the world’s three major economies, US, China and Eurozone, “have been slowing sharply” and that “the global economy was in its steepest slowdown since 1970”. It also warned that “under the circumstances, even a moderate hit to the global economy over the next year could tip it into recession.” The global body also called on central banks to coordinate their actions and “communicate policy decisions clearly” to “reduce the degree of tightening needed”. The report noted that inflation, at a forty-year peak, was driven by higher demand, (following the slowing of the pandemic, with restrictions being lifted), and the war in Ukraine pushing energy, fuel and food prices higher. Consequently, many central banks started raising rates to dampen demand from households and businesses, with big rate increases causing economies to slow, as consumers have to bear the cost of extra borrowing. In a fine balancing act, central banks may have to reconsider pushing rates too high and consider the possibility of more monetary easing.

The cost of a typical US mortgage in the US has hit its highest level since the 2008 GFC crisis, with the average rate of 6.02% more than double what it was a year ago – and the first time that it has crept above the 6.0% mark since 2008. With consumer prices 8.3% higher on the year, the Federal Reserve has taken drastic action by aggressively raising rates so as to try and cut inflation levels. It does seem that higher monthly rate hikes will continue for the rest of the year especially if inflation levels continue to head north at a faster rate than the Fed had anticipated. Although raising rates theoretically should lower consumer demand – and reduce the pressures pushing up prices. – the housing sector has seen a slowdown in property sales, but prices continue to climb, 10% higher on the year, to US$ 400k, in July.

Deflecting any blame from himself and the Reserve Bank of Australia, its Governor, Philip Lowe, blamed the country’s surging property prices on high land prices and not caused by low mortgage rates. He noted that the RBA was not to blame for the lack of affordable housing, but by land prices made higher by structural reasons, such as planning and zoning decisions, lack of investment in transport infrastructure, certain taxation policies, and peoples’ preferences to live in less dense neighbourhoods. He commented that when rates go up or down it affected property prices a lot in the short term, but that those structural factors were more important in the long run. He was concerned that if the weak global economy worsened “it’ll be difficult for us to navigate this narrow path of getting inflation down while having our economy continue to grow reasonably well.”

To the disdain of many, UK Chancellor of the Exchequer, Kwasi Kwarteng, is considering removing a cap on bankers’ bonuses .in order to make London a more attractive place for global banks to do business. EU-wide bonus rules cap bonuses at twice an employee’s salary which has meant that many banks have raised base pays higher to compensate; this in turn pushes up banks’ fixed costs, with bonuses forming part of variable costs and only paid out when profits are higher and makes the UK less attractive than the US or Asia. There are others who argue that uncapped bonuses lead to the kind of excessive risk taking that led to the 2008 GFC and that with the country heading towards a recession, this may not be the time for bankers “to raise their heads above the parapet”.

The EU inflation rate hit double digits in August at 10.1% – up 0.3% on the month – and almost treble that of July 2021’s return of 3.2%; the inflation rate in the euro area was marginally smaller at 9.1%, up from 8.9% a month earlier. The highest inflationary returns were found in Estonia (25.2%), Latvia (21.4%) and Lithuania (21.1%), with the other side of the spectrum showing France (6.6%), Malta (7.0%) and Finland (7.9%). It was reported that the highest contribution to the annual euro area inflation rate came from energy (3.95%), followed by food & tobacco (2.25%), services (1.62%) and non-energy industrial goods (1.33%).

The euro rose at its quickest rate since March, nudging 1.6% higher to US$ 1.0198 by mid-week and closing Friday at US$ 1.0016, driven by the previous week’s move to hike rates by 0.75% and US inflation figures coming in higher than expected. The ECB has lagged the Fed in tightening policy which contributed to the euro’s slide to a two-decade to below parity last month. Maybe the dollar has run its course in this particular economic cycle.

Following a marked 0.6% decline a month earlier, caused by the extra bank holiday, the UK economy nudged at a lower than expected 0.3% higher in July, attributable to an improvement seen in the services sector, helped by the UK hosting the Women’s Euro Championship. Both the production and construction sectors shrank in July, with production being hit by a fall in demand for energy such as electricity. It is widely expected that the bank holiday for Queen Elizabeth’s state funeral on 19 September, as well as the ten days of national mourning, will have a negative impact on economic growth and push the UK into recession sooner than expected. Evidence supports the theory that consumer spend is waning, under a four-decade inflation high of 10.11%. and that lower demand is in response to increased prices. With a technical recession being two quarters of recession, and the previous quarter down 0.1%, it is highly likely that this quarter will see the start of a year-long marginal recession – and the government’s utility price freeze is unlikely to change the situation.

Today, sterling fell to a thirty-seven year low, trading at US$ 1.135 to the greenback, as the cost of living worsened and August retail sales continued its slow decline, down 1.6% on the month, with households spending less in the face of rising prices. The currency has been on a slippery slope since the beginning of the year, falling from its 2022 high of 1.36, as the dollar strengthened, and at the same time inflation headed in the other direction. Latest data point to the fact the economy may already be in recession – a little earlier than many had thought.  There is no doubt that even if inflation levels have plateaued, the Bank of England will continue an aggressive policy when it comes to rate hikes to curb rising prices. Although most of the developed world will see their economies contracting, it appears that the UK recession will start earlier and last longer than those of other nations. What A Shambles!

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