One More Cup of Coffee!                                                           07 October 2022

The 1,809 real estate and properties transactions totalled US$ 1.99 billion, during the week ending 07 October 2022. The sum of transactions was 98 plots, sold for US$ 266 million, and 1,711 apartments and villas, selling for US$ 1.22 billion. The top two land transactions were both for land in Palm Jumeirah, sold for US$ 39 million and US$ 23 million. Jabel Ali recorded the most transactions, with eighteen sales, worth US$ 16 million, followed by Al Hebiah Fifth with fifteen sales transactions, worth US$ 14 million, and Mohammed bin Rashid Gardens, with fourteen sales transactions, valued at US$ 80 million. The top three transfers for apartments and villas were all in Palm Jumeirah with sales worth US$ 15 million, US$ 11 million and US$ 10 million. The mortgaged properties for the week reached US$ 401 million, while 157 properties were granted between first-degree relatives worth US$ 114 million

Q3 data confirms the continuing strength of the Dubai property market, with sales of off-plan and secondary properties reaching a twelve-year high. Property Finder noted that there were 25.5k sales transactions, totalling nearly US$ 19.0 billion, 62% and 65% higher than the corresponding figures a year earlier. September witnessed a record high month with 4.2k transactions, worth US$ 3.99 billion, including monthly off-plan transactions of 4.4k, valued at US$ 2.66 million; year on year comparisons see the latest figures 80% and 94% higher. The market should also benefit from next month’s Qatar World Cup that will see football fans descend on Dubai – some of whom will be interested in buying property. To many, it seems that the emirate is in some sort of bubble, as many other countries are experiencing a slump in property prices, whilst Dubai heads in the other direction. This is due to many factors including its enterprising strategies, positive government policies, a shortage of available prime property and golden visa initiative, as well many current residents deciding to move from renting to buying their home and the emirate becoming a magnet for high-net-worth individuals. In Q3, the emirate posted a record number of property sales, at ten, worth more than US$ 27 million, (AED 100 million), with sixteen to date.

Danube Properties sold out its third project – Opalz – on the first day of its launch this year, reflecting growing public trust and investor confidence in Dubai’s real estate sector. To date, the developer has delivered thirteen of its seventeen launched projects, with Opalz its 18^th project, valued at US$ 143 million. The latest development – twin 19-storey towers connected through a podium at the bottom and a sky-bridge on top – has a built-up area of 800k sq ft. Developed on a 67k sq ft plot of land in Dubai Science Park, it will comprise Studio, 1 BHK, 2 BHK and 3 BHK Duplex.

Zoom Property confirmed what the market already knew, that H1 sales saw average prices of affordable properties in Dubai rising 8.0%, whilst rates in upscale areas surged up to 19.0%, as the emirate’s real estate sector seems to be defying the gloomy global economic climate and maintaining its upward trend that started some fifteen months ago. According to the consultancy, Dubailand, Damac Hills 2, Business Bay, and Jumeirah Village Circle, are the most popular in the affordable sector, with Arabian Ranches, Dubai Hills Estate, Downtown Dubai, and Dubai Marina still the main selections among high-net-worth investors. Dubai Land Department noted that August was the best performing sales month over the past twelve years, posting 9.7k total sales, worth over US$ 6.62 billion, and 67.0k transactions, valued at US$ 49.05 billion YTD to 30 September – the largest sales value ever during the first nine months of the year.

Zoom noted that Business Bay, JLT and JVC, recording the biggest price increases in H1, were the three most sought-after areas for affordable apartments, with increases of 6.4%, 5.7% and 2.8%, and with average prices per sq ft of US$ 391, US$ 269 and US$ 238 respectively. Average prices in Dubai Sports City also rose by 3.1% to US$ 171. For luxury apartments, nothing could touch Downtown Dubai, with a 6.7% rise to US$ 610 per sq ft, followed by Dubai Marina and Dubai Hills Estate, moving 6.0% and 5.95% higher to reach US$ 398 per sq ft and US$ 406 per sq ft.

In the villa sector, the standout performers were JVC, Dubailand, Damac Hills and The Springs – up 7.7%, 5.7%, 2.8% and 1.7% – with prices per sq ft at US$ 180, US$ 222, US$ 282 and US$ 307 respectively. The leading locations in the luxury villa sector were Palm Jumeirah, Dubai Hills Estate and The Villa, registering price increases of 18.0%, 11.2% and 8.0%, with prices per sq ft at US$ 986, US$ 406 and US$ 232.

Developer Nakheel confirmed that “the Palm Jebel Ali masterplan is being revisited. Further details will be released in due course”, as a surge in demand for beachfront properties and apartments continues unabated. No further news was available about the project, 50% bigger than its northern neighbour, Palm Jumeirah, which has laid dormant since 2009.

According to latest figures from the Dubai Chamber of Commerce, based on data from Euromonitor, the value of the UAE e-commerce market is expected to  jump to US$ 9.2 billion by 2026, as its share of the country’s total retail sales is expected to top 12.6%, over the next four years. The robust growth in the sector was driven by several factors, including the availability of apps, increased pricing transparency and the growing number of loyalty rewards programmes. In 2021, the three best-selling product categories were consumer electronics, apparel/footwear and food/beverages, accounting for 34%, 31% and 12% of total sales.

This month, a three-day auction will take place in the Airbus home base of Toulouse, as the plane maker sells parts of a retired Emirates A380 superjumbo. Proceeds will go to the Airbus Foundation, which funds humanitarian initiatives, and to AlRitage, an organisation that protects aviation heritage. Some of the items on offer include, (with estimated prices):

• Set of two business class seat lamps – US$ 788 – US$ 1,270
• Side panel of fuselage – US$ 790
• Baggage box, set of two – US$ 1,180 – US$ 1,970
• Double trolley unit – US$ 390 – US$ 580
• Emergency axe – US$ 490 – 780
• Row of three economy class seats with screens – US$ 1,000 – US$ 2,000
• Folding hostess seat – US$ 290 – US$ 485
• Bar bench from first or business class – US$ 2,940 – US$ 4,800
• Rear cone of the engine in three parts – US$ 9,800 – US$ 14,750
• Faux marble sinks from first class – US$ 1,970 – US$ 3,400
• Access door to the cabin – US$ 2,900 – US$ 4,800
• Cockpit staircase – no estimate

DP World has done its bit to help the global supply lines by opening up more than 23k nautical miles of new global trade routes in the first nine months of the year. New routes this year include connections between India, Middle East and Africa, along with multiple routes connecting smaller ports with Rotterdam in Europe, and new connections between Latin America, Europe and Asia. The new routes have proved a boon for cargo owners, giving better access to goods and services for underserved populations, and providing alternatives to globally congested routes and ports.

There was no surprise to see that the DMCC was ranked the Global Free Zone of the Year 2022 by the Financial Times’ fDi Magazine, as this had happened for the previous seven years. Judging was carried out by the Financial Times Specialist editorial team and a panel of independent judges against a comprehensive set of criteria and a review of the free zones’ ecosystems. At the same time, it also received:

• large Tenant Free Zone of the Year – Global
• large Tenant Free Zone of the year – ME
• ME Free Zone of the Year
• SME Free Zone of the Year
• ME Excellence Award for ESG Practices – Global
• excellence Award for Infrastructure Development – Global

Its CEO, Ahmed bin Sulayem, noted that “since DMCC was established in 2002, we have had two core goals – create a global gateway for trade, and comprehensively enhance the ease of doing business for our member companies”.

It has been reported that Dubai Aerospace Enterprise, founded in 2006 by Sheikh Ahmed bin Saeed Al Maktoum, has signed a definitive agreement to acquire 100% of Sky Fund I Irish and its subsidiaries. The Irish-based plane lessor owns and is committed to own thirty-six mostly new tech, fuel efficient aircraft on lease to fourteen airline customers in eleven countries. No financial details were readily available, but DAE will use internal financing for its acquisition. The Dubai-based global aviation services company, one of the largest leasing companies in the world, currently serves 170 airlines in over sixty-five countries and plans to invest up to US$ 2.0 billion, this year, in new-technology fuel-efficient aircraft through sale-and-lease back deals and trading channels.

KPMG LLP has been fined US$ 1.5 million, and its former audit principal Milind Navalkar US$ 500k, by the Dubai Financial Services Authority, for failing to follow international standards during its Abraaj audits from a number of years up to October 2017. The original decision by the court was issued in June 2021 but was only made public on Monday because the defendants had requested the Financial Markets Tribunal to keep the ruling secret. The tribunal subsequently refused both requests for privacy and both then appealed to the DIFC Court against the FMT’s decision, which was dismissed.

The Abraaj Group, which was founded in 2002 and became the ME’s biggest private equity firm, claimed to manage about US$ 14 billion of assets at its peak, with operations across Africa, Asia, Latin America and the Middle East. It was forced into liquidation in 2018 after investors, including the Bill and Melinda Gates Foundation, commissioned an audit to investigate alleged mismanagement of money in its US$ 1 billion healthcare fund. With several US investors impacted by the alleged fraud, US authorities, including the SEC, got involved and discovered major discrepancies in Abraaj’s accounts. The DFSA concluded that if the audits had been carried out to international standards, the fraud would have been found out five years earlier and that its accounts did not conform to accounting rules, and that the unit had failed to maintain adequate capital resources and was concealing the true state of its finances from the audit firm. The report also noted that the “DFSA found that Mr Navalkar was knowingly concerned in KPMG LLP’s breaches, and he also failed to act with professional competence and care.”

The DFM opened on Monday, 03 October, 80 points (2.3%) lower on the previous week, and gained 34 points (1.0%), on Friday 07 October, to close on 3,373. Emaar Properties, US$ 0.07 lower the previous week, gained US$ 0.05 to close the week on US$ 1.63. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.68, US$ 3.43, US$ 1.65, and US$ 0.45 and closed on US$ 0.69, US$ 3.60, US$ 1.63 and US$ 0.39. On 07 October, trading was at 64 million shares, with a value of US$ 50 million, compared to 105 million shares, with a value of US$ 66 million, on 30 September 2022.  

By Friday 07 October 2022, Brent, US$ 19.85 (18.7%) lower the previous four weeks, reversed the trend, gaining US$ 8.89 (9.2%) to close on US$ 93.22.  Gold, US$ 16 (1.0%) higher the previous week, gained a further US$ 34 (2.0%), to close Friday 07 October, on US$ 1,668.

To the dismay of President Biden, OPEC+ cut production quotas by up to two million bpd at this week’s Vienna meeting, despite an already tight market. The move, to reduce production by 2%, did not surprise anyone except the US President, with the administration calling the decision ‘short-sighted’, with the bloc arguing the this was necessary because of rising interest rates in the West and a weaker global economy. The production cuts will inevitably see prices higher – a factor that could impact on the mid-term elections next month and further damage Biden’s already low approval ratings. Under-production is down to Western sanctions on countries such as Russia, Venezuela and Iran and output problems with producers such as Nigeria and Angola. One of the reasons why the administration wanted to see lower prices is to deprive Moscow of oil revenue. The blame game goes to and fro, with the West accusing Russia of weaponising energy, whilst Russia accuses the West of weaponising the dollar and financial systems.

Probably acting on legal advice, and after earlier noting that he would walk away from the US$ 44 billion deal, Elon Musk has offered to complete his acquisition of Twitter. The market reacted to his decision by pushing up its shares by 22.2%, closing at US$ 52. There were two preconditions set by Musk’s lawyers – that the adjournment of the Delaware trial and securing of debt financing. Musk tweeted that buying the company would be an “accelerant” to “creating X, the everything app”, adding the process would be accelerated by up to five years, without giving further details. The potential owner’s attitude, since his bid earlier in the year, displeased Twitter which noted that his behaviour was “a model of bad faith” and accused him of treating the sale process as an “elaborate joke”. It will be interesting to see what happens if and when he takes over control.

Joe Sullivan, who was chief security officer at Uber until he was dismissed in 2017, has been convicted, by a San Franciscan jury, for obstruction of justice and concealing a felony by failing to tell US authorities about a 2016 hack of the company’s databases. His defence team had argued that Sullivan, who once worked as prosecutor for the San Francisco US attorney’s office, “his sole focus, in this incident and throughout his distinguished career, has been ensuring the safety of people’s personal data on the internet.” The prosecution’s case was that it was expected that “those companies to protect that data and to alert customers and appropriate authorities when such data is stolen by hackers,” and must “do the right thing” when their systems are breached. It accused Sullivan of working to hide the data breach from US regulator, the Federal Trade Commission (FTC), adding he “took steps to prevent the hackers from being caught.” It appears that, in December 2016, the then chief security officer arranged for the hackers to be paid US$ 100k in bitcoin in exchange for them signing non-disclosure agreements not to reveal the hack to anyone. It seems that Sullivan did everything by the book – and that Uber were later able to identify the two hackers – but his only error was to try and cover it up and not notify the authorities.

This week sees shares in Credit Suisse, which employs 5.5k in the UK, tank 10% after the market was not sure that its chief executive, Ulrich Koerner, would be able to deliver a comprehensive restructuring package, with concerns about its financial position; the month started with its credit default swaps surging to their highest level in twenty years. Last week, its supremo wrote to staff, “I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank,” noting that there were “many factually inaccurate statements being made” in the media. In July, the bank announced a strategy review and replaced its chief executive, Thomas Gottstein, with Mr Koerner, an asset management expert.

Over the past decade, it seems that the bank has stumbled from one crisis to another, and this month has pleaded guilty to defrauding investors over an US$ 850 million loan to Mozambique meant to pay for a tuna fishing fleet and paying US and British regulators US$ 475 million to settle the case. In recent times, it lost US$ 5.5 billion when U.S. family office Archegos Capital Management defaulted in March 2021, whilst its hedge fund’s highly leveraged bets on certain tech stocks backfired and the value of its portfolio with Credit Suisse plummeted – an independent report laid blame at the door of the bank’s management who oversaw a fundamental failure in control at its investment bank, and its prime brokerage division in particular. Then, in March 2021, it was forced to freeze US$ 10 billion of supply chain finance funds, when British financier Greensill Capital collapsed after losing insurance cover for debt issued against its loans to companies. The bank had earlier sold billions of dollars of Greensill’s debt to investors, assuring them in marketing material that the high-yield notes were low risk.

In August, the bank reported that it would strip back its investment bank and cut out US$ 1.5 billion of costs. With some analysts estimating that it would need to find an additional US$ 4.0 billion to fill ‘the hole’ because of restructuring costs, the need to grow other business lines and regulatory pressure to strengthen its capital ratios.  On top of that, it would have to find extra funds to pay out on retrenchments and also to potentially write off losses on winding down high-risk trades, as well as the need to invest in other sectors of the business to make up for the lost investment bank income. This could easily put the total cost nearer US$ 6.0 billion, and whether investors, still coming to terms with earlier losses and the fact that the bank’s market cap has dipped 25%, in recent times, to just US$ 10.0 billion, remains to be seen.

To all those moaning about high inflation may take some comfort from the fact that Turkey’s rate climbed to a twenty-four year high last month topping 83.0%, with transport (at 117.7%), food/alcoholic drinks (93%) and housing registering the highest increases. Indeed, the independent Inflation Research Group estimate the annual rate is 186.3%; the rate in January 2021 stood at 15.0%. It appears that the unorthodox move of cutting interest rates, instigated by President Recep Tayyip Erdogan, flies in the face of basic economic theory – as most other nations have pushed rates higher to try and curb soaring inflation levels. Two weeks ago, rates were again cut this time by 100bps to 12.0%, at a time when most analysts were forecasting the rate to remain unchanged, with the Central Bank of Turkey posting that recession risks were inevitable. Meanwhile, the lira continues to slump to new depths trading this week at 18.57 to the greenback; in January 2021, the rate was 7.43.

The government’s decision to backtrack on its earlier decision to scrap the 45% top rate of tax, (even though in the scheme of things it would only have cost in the region of US$ 2.2 billion, offset by benefits of more businesses using UK as a base increased which would have had a positive impact on the country’s economy), saw sterling recover on the markets. Its earlier move to cut taxes in the mini-budget, spooked the global markets, resulting in a major loss of consumer confidence, a marked fall in sterling and a major fall in gilts; the end result was that the BoE had to step in with a US$ 73 billion package to steady nerves. It climbed more than 1% to US$ 1.1284 and nudging nearer to 1.14 by yesterday. However, there is concern on how the Chancellor, Kwasi Kwarteng, will fund the remaining US$ 48 billion of the new tax cuts made in the mini budget and he will need to convince the market that they are ‘doable’, by either performing another embarrassing partial U-turn, raising tax in other sectors or a major cut in public spending. If the government continues on the same track, it is highly probable to lead to higher inflation and increased interest rates.

A week after bailing out the Truss government, the BoE wrote that if it had not intervened, pledging to buy up to US$ 73 billion of government bonds after the “fiscal event”, (the now infamous Kwasi Kwarteng mini budget), there could have been a US$ 55.5 billion sale of UK gilts connected to the pensions industry, along with a risk of a downward “spiral”. For two days, the cost of borrowing saw record increases and the rise in borrowing costs over four days was “three times larger than any other historical move”. Investors had demanded a much higher return for investing in government bonds, causing some to halve in value. If the US$ 55.5 billion sale had occurred it would have equated to four times the normal daily trade in the market, and would have pushed the effective cost of borrowing, or yield, even higher than 5%, leading to further problems – before the mini-budget, this yield had stood at about 3.6%. Yesterday the BoE confirmed it would wind down its bond buying in “a smooth and orderly fashion”, once it felt the market was functioning normally again.

In the UK, a typical two-year fixed mortgage rose 1.01% to almost 5.75% following the now infamous mini-budget which spooked global financial markets and saw sterling plummet overnight. It seems that major mortgage lenders are increasing the cost of home loans, as lenders scramble for cheaper mortgages whilst lenders have started tightening up and withdrawing hundreds of products in recent days and focussing less on those who have high debt levels, or who may have missed repayments on credit. The message is that the days of ultra-low rates are now in the annals of economic history. It is estimated that in the UK, about 100k households a month come to the end of a fixed deal and often remortgage, while first-time buyers also sign up to fixed deals. The 1.5 million homeowners on variable or tracker deals often see their costs rise in direct response to a Bank rate rise, but in the past, rises have tended to be gradual and it is the speed of rises that has given concern. A homeowner borrowing US$ 200k on a thirty-year mortgage may have been looking at a rate of 3.5% and a monthly repayment of US$ 898 just over a week ago. Now, they are more likely to be facing a 5.5% rate and a monthly repayment, 26.4% higher at US$ 1,135.

The UN Conference on Trade and Development seems to have taken a hit at most of the global central bankers by noting that “continued monetary tightening — through rising central bank rates and the normalisation of their balance sheets — will have little direct impact on the supply sources of inflation and will instead work indirectly to re-anchor inflationary expectations by further reducing investment demand and pre-empting any incipient labour market pressures.” It continued that “the attention of policymakers has become much too focused on dampening inflationary pressures through restrictive monetary policies” and that there was a distinct possibility that “the policy remedy could prove worse than the economic disease, in terms of declining wages, employment and government revenues.” There are many who indicate that the way things are going, the end result could well be a ‘right proper’ recession, rather than the soft landing hoped for by those manifesting stricter monetary management.

The UN body estimated that 2022 growth will be at 2.5%, less than half of the 5.6% recorded last year, with the caveat that there are risks of a further drop if financial conditions deteriorate in leading economies, with a knock-on impact for emerging economies. It also noted that, if such a low-growth scenario persists for two or more years, world output will be on course for a slower expansion than following the 2008 GFC. The three main factors behind the global slowdown are the rising cost of borrowing and a reversal of capital flows, a marked slowdown in China’s growth and the economic repercussions from the Ukraine war. Consequently, Unctad concluded “with forty-six developing countries already severely exposed to financial pressure from the high cost of food, fuel and borrowing, and more than double that number exposed to at least one of those threats, the possibility of a widespread developing country debt crisis is a very real one, ending any hope of meeting the sustainable development goals by the end of the decade.”

There is no wonder that the global economy is still reeling from a triple whammy of recent events over the past three years – Covid 19, the war in Ukraine and continuing climate catastrophes that seem to be worsening. This has led the IMF to downgrade its global growth forecasts – again – to warn of rising recession risks and that there was a distinct possibility of a global output loss of about US$ 4 trillion over the next four years. But whatever its MD, Kristalina Georgieva, says, the IMF – along with many central banks – have been slow in attacking growing inflation, arguing at first that it would be transitory and did not take any positive action before it was too late. Now it seems that the IMF will report next week that its 2023 global growth forecasts will downgrade its earlier one in June of 2.9%. Just like England’s football manager, Gareth Southgate, the IMF appears not to have a Plan B.

Bad news for coffee drinkers at a time when EU inflation topped 9.1%, with every likelihood to hit double digits when September figures are released next week. All three items found in coffee – coffee, sugar and fresh whole milk – were higher in all nations in the bloc. The news is particularly bad for coffee drinkers, with Eurostat indicating that the price of coffee was on average 16.1% higher on the year in August, compared to a 0.5% rise in August 2020. Finland posted the highest increase at 43.6%, followed by Lithuania (39.9%), Sweden (36.7%), Estonia (36.4%) and Hungary (34.3%). On average, the price of fresh whole fat milk increased 24.3% on the year, with the biggest rises seen in Lithuania (50.2%), Croatia (41.2%), Estonia (38.9%), Germany (30.6%) and Hungary (30.1%). Sugar inflation was at 33.4%, with the largest annual inflation seen in Poland, (109.2%), Estonia (81.2%), Latvia (58.3%), Bulgaria (44.9%) and Cyprus (43.2%). Strangely, since the beginning of the year, global coffee prices have fallen by 3.5% to US$ 218.10 per lb. Maybe there is the time – but not the money – for One More Cup of Coffee!