Down, Down, Down!                                                                     04 November 2022

The 3,474 real estate and properties transactions totalled US$ 2.62 billion, during the week ending 04 November 2022. The sum of transactions was 348 plots, sold for US$ 649 million, and 3,126 apartments and villas, selling for US$ 1.97 billion. The top three land transactions were all for land – two in World Islands, sold for US$ 95 million and US$ 26 million, and the third in Al. Safa 2 for US$ 20 million. Jabal Ali recorded the most transactions, with 122 sales worth US$ 117 million, followed by Al Hebiah Fifth, with seventy-two sales transactions, worth US$ 48 million, and Al Hebiah Fourth with twenty-four sales transactions, valued at US$ 59 million. The mortgaged properties for the week reached US$ 362 million, with the highest being  land in Al Hamriya, mortgaged for US$ 41 million. 79 properties were granted between first-degree relatives worth US$ 578 million.

The last day of October was a bumper one for Dubai real estate, with deals on Monday topping US$ 1.04 billion, including 625 sales transactions worth US$ 455 million, 101 mortgage deals totalling US$ 75 million and twenty-three gift deals amounting to US$ 529 million. That would bring October’s transactions to a total of US$ 9.11 billion, compared to US$ 6.65 billon in September. YTD figures to 31 October are near to US$ 60 billion.

At the peak of the pandemic, many renters of Dubai property made the move to bigger residential space and larger outdoor areas, as restrictions made many ‘house-bound’. But, as the economy reboots at a much quicker rate than many had expected, and residential rents have started climbing north, there is a marked reverse in movements to downsizing again. The end result is that there are steeper increases in rents, (up by 28% for villas and apartments by 26%), as compared to increases in sales prices. Despite these steep annual rises, both villa and apartment rents are below 2014 peaks by 5% and 24%.

There have been significant apartment rent rises seen in several locations, including Palm Jumeirah, Downtown Dubai, The Greens, The Views, Discovery Gardens, Dubailand and Dubai Sports city, with hikes of 38%, 37%, 37%, 37%, 27%, 25%, and 21%.  Core noted that she steepest increases, in year-on-year villa rents, were posted in Emirates Hills (42%), Palm Jumeirah (41%), Jumeirah Village Circle (28%,) the Springs (20%) and the Meadows (20%).

Alpago Properties is confident that another high-value penthouse on the Palm Jumeirah will attract bids of over US$ 68 million – as the demand for luxury properties continues to rise in Dubai. The same developer recently sold a new mansion, in the same location, for a record price of US$ 82 million, (AED 302 million). The penthouse is one of ten penthouses in its eleven-tower, ten-residence Palm Flower project; construction will start in Q1 2023, with completion slated for 2024.

The latest S&P Global PMI sees business activity in the UAE’s non-oil private sector continue to improve last month,  with new business and output along with a rise in demand and employment. The October seasonally adjusted PMI rose 0.5 to 56.6 – its highest since July 2019. The fact that there were marked expansions in business activity and new orders point to domestic firms benefitting from strong demand growth, and this has led to an increase in work backlogs as firms’ operating capacity is being stretched to the limit in many cases. New order inflows were the highest since last November, attributable to several factors, including growth in new clients, lower prices, improved services and this month’s FIFA World Cup in Qatar. Not surprisingly, this has led to a marked increase in payroll numbers – rising at its fastest rate since July 2016 – and purchasing activity at its fastest rate in three years.

In tandem with the latest S&P Global PMI, other data indicate that the economy is in robust health having made a strong rebound from the pandemic-induced slowdown The Central Bank expects UAE’s economy to expand by 5.4% this year, whilst Emirates NBD forecasts a more bullish 7.0%, attributable to higher energy prices and the “robust growth” of its non-oil sector, and ADCB sees a 6.2% growth this year. In H1, foreign trade rose 19.0% to US$ 272 billion, compared to the same period pre-Covid. Over the same comparative periods, the number of hotel guests was 42% higher, at twelve million, with the revenue generated surpassing US$ 5.2 billion. Q3 Dubai property prices reached a twelve year high, both in terms of volume and value, whilst average property prices, in the twelve months to 30 September, rose by 8.9%; average villa prices were more than 14% higher and average apartment prices by 8.0%.

On 01 November, Emirates and Air Canada announced the launch of their codeshare cooperation, confirming that the new partnership will allow customers of both airlines to enjoy seamless connectivity to forty-six markets, spanning three continents. Emirates also noted that “codeshare tickets will be available for sale to thirty-five markets for travel effective 01 December, with eleven additional markets to be added pending final regulatory approval, and the potential for more markets to be included beyond that.” The Dubai-based carrier’s customers will be able to book codeshare flights to and from Canadian points beyond Toronto, including Calgary, Edmonton, Halifax, Montreal, Ottawa and Vancouver.

At this week’s Abu Dhabi International Petroleum Exhibition and Conference, the UAE and the US signed a strategic partnership agreement to invest US$ 100 billion in clean energy projects, with a production capacity of 100 gigawatts, by 2035. ‘PACE’, (the UAE-US Partnership for Accelerating Clean Energy) will finance and offer other support in addition to deploying 100 new gigawatts (GW) of clean energy in the US, the UAE and emerging economies. Both countries reconfirmed their joint commitment to enhance climate ambition and climate action, in line with their net zero 2050 goals. Utilising private and public sector funding, PACE will focus on four main areas:

• clean energy innovation
• financing, deployment and supply chains
• carbon and methane management advanced reactors, including Small Modular Reactors (SMRs)
• industrial and transport decarbonisation

All du’s financial indicators headed north in Q3, including revenue, (10.5% to the good at US$ 864 million) and EBITDA, 18.5% higher at US$ 355 million, driven by sustained demand for broadband and mobile services. The increase in service revenues (and its inherent higher profitability) saw the gross margin up 3.0% to 65.2%, and the EBITDA margin expanded by 277bp to 41.0%. Revenue streams saw mobile service revenues 10.7% higher to US$ 393 million, with equipment sales accounting for US$ 48 million. Capex totalled US$ 197 million, with the company ending the period with a net cash position of US$ 248 million and US$ 1.04 billion of undrawn facilities. Its mobile customer base grew by 14.7% to 7.4 million subscribers.

The Ministry of Energy adjusts fuel prices in the UAE on the last day of every month. According to the government, the UAE liberalised fuel prices help to rationalise consumption and encourage the use of public transport in the long run and incentivise the use of alternatives. The UAE Fuel Price Committee increased November retail petrol prices by up to 9.8% – the first increase in three months.

• Super 98: US$ 0.905 – up by 9.6% on the month and up 25.3% YTD from US$ 0.722  
• Special 95: US$ 0.872 – up 9.6% on the month and up 26.6% YTD from US$ 0.689
• Diesel: US$ 1.025– up 9.3% on the month and up 47.1% YTD from US$ 0.697
• E-plus 91: US$ 0.853 – up by 9.8% on the month

The UAE Central Bank followed the US Federal Reserve by lifting its benchmark borrowing rates by 0.75%; the Base Rate applicable to the Overnight Deposit Facility (ODF) rose by 75 basis points to 3.90%. The rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities was maintained at 50 basis points above the Base Rate, which provides an effective interest rate floor for overnight money market rate.

In the first nine months of the year, Dubai Aerospace Enterprise posted profit, before exceptional items, 125% higher at US$ 204 million, with cash flow from Operating Activities up 20% to US$ 957 million. By September, DAE’s net to debt equity stood at 2.35, with available liquidity at US$ 2.8 billion, giving a liquidity coverage ratio of 743%. During the period, the company acquired and sold forty-five, (ten, owned and thirty-five managed) and thirty-five aircraft, (twelve, owned and twenty-three managed). Last month, it acquired Sky Fund I Irish, Limited, a company with a fleet of 36 modern aircraft.

Taaleem is joining a growing list of Dubai-based businesses planning IPOs on the DFM. The private school operator aims to raise US$ 204 million, with the process starting this Thursday, 10 November and will close on 16 November for UAE retail investors, eligible employees and eligible parents; subscriptions will close on the following for professional investors. Taaleem, owned by Investment Corporation of Dubai, “intends to use the net proceeds from the offering to expand its premium K-12 schools’ network.”

Union Properties on Tuesday reported a Q3 net profit of US$ 225k – following a net loss of US$ 8 million a year earlier – with a 3.0% hike in revenue to US$ 27 million, attributable to group’s subsidiaries delivering healthy performance improvements, driven by strong market dynamics in the local real estate sector. Over the period, admin expenses halved to under US$ 5 million and by 39.0%, to US$ 15 million over the first nine months of 2022. Two major events in Q3 saw the successful completion of the US$ 162 million debt restructuring plan and subsidiary ServeU being awarded fifty-eight new contracts, valued at US$ 74 million. As at 30 September, its book value had remained flat at US$ 518 million, equating to US$ 0.122 per share.

On Monday, Emirates Central Cooling Systems Corporation announced that the price range  for its upcoming IPO, which is expected to raise in the region of US$ 360 million, would value Empower around the US$ 3.6 billion mark. 10% of the total issued share capital of Empower (equivalent to a total of 1,000,000,000 shares) were being made available via the Offering, with the now usual caveat that the Selling Shareholders’ reserve the right to amend the size of the Offering. A day later, it was announced that, due to popular demand, it had raised the size of the IPO by 50% to 15% and by Friday, to 20%. The world’s largest district cooling provider has already indicated that the 2023 dividend will be within the 6.4% – 6.5% range equating to US$ 232 million. All the shares involved in the IPO already exist, with DEWA and Empower initially selling 7% and 3% of the total issued share capital, respectively.

The DFM opened on Monday, 31 October, 76 points (2.3%) higher on the previous three weeks, nudged 1 point higher to close on 3,350 by Friday 04 November. Emaar Properties, US$ 0.04 lower the previous week, remained static to close the week on US$ 1.66. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.68, US$ 3.56, US$ 1.66, and US$ 0.39 and closed on US$ 0.67, US$ 3.58, US$ 1.59 and US$ 0.41. On 04 November, trading was at 172 million shares, with a value of US$ 73 million, compared to 82 million shares, with a value of US$ 69 million, on 28 October 2022.

For the month of October, the bourse had opened on 3,339 and, having closed the month on 3,332 was 7 points (0.1%) lower. Emaar traded US$ 0.07 higher from its 01 October 2022 opening figure of US$ 1.58, to close the month at US$ 1.65. Four other bellwether stocks, Dewa, Emirates NBD, DIB and DFM started the month on US$ 0.68, US$ 3.50, US$ 1.60 and US$ 0.47 and closed on 31 October on US$ 0.66, US$ 3.67, US$ 1.59 and US$ 0.38 respectively. The bourse had opened the year on 3,196 and, having closed October on 3,332, was 136 points (4.3%) higher, YTD, Emaar traded US$ 0.33 higher from its 01 January 2022 opening figure of US$ 1.33, to close October at US$ 1.66. Four other bellwether stocks, Dewa, Emirates NBD, DIB and DFM started the year on US$ 0.00, US$ 3.69, US$ 1.47 and US$ 0.72 and closed on 31 October on US$ 0.66, US$ 3.67, US$ 1.59 and US$ 0.38 respectively.

By Friday 04 November 2022, Brent, US$ 4.14 (4.5%) higher the previous fortnight, was up US$ 2.87 (3.0%) to close on US$ 98.64.  Gold, US$ 15 (1.0%) lower the previous week, gained US$ 38 (2.3%), to close Friday 04 November.

Brent started the year on US$ 77.68 and gained US$ 17.15 (22.1%), to close 31 October on US$ 94.83. Meanwhile, the yellow metal opened January trading at US$ 1,831 and has shed US$ 189 (10.3%) during 2022, to close on US$ 1,642. For the month, Brent opened at US$ 86.33 and closed on 31 October, US$ 9.21 higher (10.5%) at US$ 94.83. Meanwhile, gold opened October on US$ 1,716 and shed US$ 74 (4.3%) to close at US$ 1,642 on 31 October.

BP became the latest energy giant to make obscenely high profits, with many critics calling for the Sunak government to raise more money from the windfall tax on global profits. In Q3, BP more than doubled its quarterly profit, compared to a year earlier, at US$ 8.2 billion, driven by surging energy prices which is a major factor in fuelling a rise in the cost of living. Whilst Shell does not expect to pay any such tax this year, BP’s windfall tax will be in the region of US$ 800 million; the tax was introduced by the then Chancellor Sunak in May and estimated to boost the Exchequer by up to US$ 17 billion this year and next “to help fund cost of living support for eight million people” – many consider this figure too low and that energy companies should be paying more and there is every chance this will be taken up in the Autumn Statement on 17 November.

As the impact of a global shortage of semiconductors continues unabated, Toyota, the world’s biggest carmaker, has announced that it expects annual production of vehicles to come in below its initial target No estimate was given but since it has missed its first four months’ target to July, it seems likely that the figure will be 9.3 million for the twelve months to the end of March. Toyota confirmed that a revised target will be disclosed once the outlook for production becomes clearer. Like its peers, Toyota has also been impacted by a decline in consumer confidence, mainly attributable to soaring inflation, rising interest rates and growing risks of economic recession in major markets. Toyota will suspend eleven production lines at eight domestic factories next month, for between two to nine days, affecting the output of a wide variety of vehicles, including the Corolla, RAV4 and Yaris. It ended up producing about 8.6 million vehicles in the last financial year to 31 March.

According to a Washington Post’s report, Twitter, is planning to cut its workforce by 25%, (more than 1.7k of its current 7k payroll), as part of what is expected to be a first round of layoffs, Elon Musk has denied about laying off Twitter employees at a date earlier than 01 November to avoid stock grants due on the day.

Earlier in the week, it looked as if UK battery firm Britishvolt would fold in the wake of the UK government rejecting a US$ 34 million (GBP 30 million) advance to help in constructinga factory in Blyth in Northumberland which would build batteries for electric vehicles. However, it managed to secure funds from other sources after it was refused a request to draw down a third of a US$ 113 million government commitment. This cash injection will allow the firm, which has yet to make any revenue, to stay afloat in the short to medium term. In January, the then Johnson administration had pledged the US$ 113 million to help it build its battery plant, as well as to attract more private investment for the development, as part of its “levelling up” strategy. The government’s commitment helped the company raise a further US$ 1.93 billion from private investors, which included UK asset investment giant Abrdn and fund manager Tritax. However, Britishvolt, citing “difficult external economic headwinds including rampant inflation and rising interest rates”, has had to delay the start of production until the middle of 2025. It still seems that the US$ 4.32 billion (GBP 3.8 billion) project may not go ahead, with a spokesman adding that the company was “aware of market speculation” and was “actively working on several potential scenarios that offer the required stability”. The demand for batteries will increase significantly especially because that from 2030, sales of new petrol and diesel cars in the UK will be banned and manufacturers are switching to making electric vehicles. It is understood that Britishvolt had already struck MoUs to make batteries for UK car firms Aston Martin and Lotus.

To the surprise of many, incumbent Labour Prime Minister, Anthony Albanese and Treasurer Jim Chalmers have decided to stick with the Morrison government’s controversial stage 3 tax cuts. It seems that the financial benefits of the Albanese government’s major tax and welfare policies will be of greater use to the country’s rich, and, at the same time, widening income inequality, making the rich richer and the poor poorer, Calculations see that high income couples with children will get an extra US$ 6,261 a year, whereas the lowest income couples, with children, will only get US$ 124.  The professorial study has indicated that policies will see the top 20% of households getting an extra US$ 7.7 billion a year in disposable income in 2024-25, compared to the poorest 20% benefitting by US$ 26 million. The variances in total benefits are startling:

US$ mil	Top 20%	Bottom 20%
Couple with children	6,261	124
Couple only	2,796	2
Lone person	2,244	0
Single parent	4,306	4

A flash estimate from Eurostat sees the Euro area annual inflation to come in 0.8% higher on the month at 10.7%. All the main components of euro area inflation are expected to move higher from September, including, energy up 1.2% higher to 41.9%, food, alcohol & tobacco (1.3%, to 11.8%), non-energy industrial goods, (0.5% to 6.0%) and services (0.1% to 4.3%).

In a move that seems to be deflecting blame away from the ECB bureaucracy, its supremo, Christine Lagarde, signals out Russian President Vladimir Putin’s for the soaring inflation levels and cost of living crisis that is dragging the bloc’s economy into an inevitable recession. She commented that the central bank has had to raise interest rates because of inflation caused by Russian President Vladimir Putin’s war in Ukraine, and warning “that’s what he [Putin] is trying to do, cause chaos and destroy as much of Europe as he can,” and “this energy crisis is causing massive inflation which we have to defeat.” Maybe she and her cohorts could have moved much earlier and much quicker and not wait until inflation nudged towards the double-digit mark – and quintuple the ECB’s 2.0% target. Not only has she laid the main cause at Putin’s door but also pointed to a speedier-than-expected economic rebound from the pandemic as a secondary cause.

Some would agree that Christine Lagarde has some nerve to tell the people of the nineteen-member euro zone that inflation has further to rise from the current October figure of 10.7% without specifying a level for the so-called terminal rate. This is the lady who became President of the ECB four years ago this week, when the bloc’s inflation rate in November 2018 stood at 1.9%. Two years later inflation was at minus 0.3% in late 2020, and eleven months later, in October 2021, inflation nudged over 2.0%. So, over the past year, the bloc’s inflation rate has more than quintupled, whilst to the outsider, the ECB has been remiss in doing so little to solve the problem.

From the end of 2021 onwards, inflationary pressures broadened and intensified, with core inflation rising above 2% as of October 2021 and more significantly as from February 2022. This was driven by a sequence of supply shocks, in particular disruptions in energy markets following Russia’s war with Ukraine, combined with a rebound in demand reflecting pandemic restrictions being lifted. A succession of supply-side shocks has the potential to destabilise inflation expectations, with the risk that the increase in inflation becomes self-sustained. In response, the ECB began normalising monetary policy in December 2021, with the decision to end net purchases under the pandemic emergency purchase programme at the end of March 2022. Lagarde indicated that borrowing costs had further to rise and that, “the destination is clear, and we haven’t reached it yet;” she also acknowledged that the likelihood of a recession had increased but warned of the dangers of not stepping in to tame inflation. A year ago, the ECB’s Governing Council, driven by the fact that inflation was beginning to get out of hand, noted that it would ensure inflation returns to the 2% target over the medium term.  The Bahasa term, “Jam Karat”, means that time in Indonesia moves at a different, slower pace and perhaps it could be used to describe the ECB’s timekeeping.

YTD, at the end of September, China’s current account surplus had risen by 56%, year on year, at a record US$ 310.4 billion. The country’s goods trade surplus rose by 37% to another record at US$ 521.6 billion, while the deficit under trade in services narrowed by 23%. Another positive economic indicator showed direct investment with a net inflow of US$ 46.9 billion.

The Fed on Wednesday lifted its policy rate by another 0.75% – for the fourth successive month in a row – with its short-term rate to between 3.75% and 4.0%, the highest level since 2008. The main aim of this strategy of raising rates is to bring inflation down towards its 2.0% target range – at a time when the US headline CPI had increased by 0.4% in September, up 8.2% from a year earlier. The core CPI, which excludes food and energy, increased 6.6% from a year ago, the highest level since 1982, according to Labour Department data. Despite the economy climbing out of its mid-year technical recession, it has returned to growth but many think this will be short-lived. In line with other major central banks, it could be argued that it has been far too slow to react to rising prices and now the country is suffering from their vacillation.

Meanwhile, the Bank of England had its first asset sales from the quantitative easing (QE) asset portfolio, offering US$ 863 million, (US$ 750 million), last Tuesday, but postponed the fourth auction to avoid a clash with the UK government’s fiscal statement; it has US$ 965.8 billion of government bonds in its Asset Purchase Facility after a more than a decade of buying to stimulate the economy. The BoE also confirmed that future auctions will take place on 07 November, 14 November, 24 November, 28 November, 05 December and 08 December.

The Bank of England has warned the UK is facing its longest recession since records began, as it raised interest rates by the most since 1989, that will see unemployment levels doubling to 6.5% by 2025, from its current fifty-year level low; rates were lifted by the expected 0.75% to 3.0%. With some irony, BoE Governor commented that there was a “tough road ahead” for UK households, but said it had to act forcefully now or things “will be worse later on”. If only he and his cohorts had moved quicker, the country would not be facing such a worrying future. It also got its recession forecast wrong having initially expected the UK to fall into recession at the end of this year, indicating it would last for all next year. Now it believes the economy has already entered a “challenging” downturn this summer, which will continue next year and into the first half of 2024. Only three months ago, the forecast had been about a sharp energy recession, with the current thinking being a shallower but a longer downturn.

Nationwide posted that October UK house prices fell 0.9% on the month – for the first time since June 2021 – noting that one of the main impact factors was the debacle of the Truss/Kwarteng mini budget that spooked global markets and pushed UK mortgage rates up to 2.0% higher (for a time). The lenders suspended hundreds of mortgage products, amid uncertainty over how to price these long-term loans. The October fall was the largest since June 2020, at the height of the Covid pandemic. Across the UK, the average house price in October was US$ 307.9k, (GBP 268.3k), whilst there was a marked slowdown in annual house price growth last month, to 7.2% from 9.5% in September, with the market deteriorating further in the coming months; according to the BoE, monthly mortgage approvals edged lower – 10.3% lower at 66.8k in the month in September. Tuesday’s rate hike ensured the market will slow even further in the coming months, as demand continues to wane.  Any expat thinking of buying property in the UK would do well to wait another fifteen months when prices could be at least 20% cheaper, in sterling terms, and perhaps even lower in dirhams, as sterling sinks.  The next eighteen months will be painful for everyone, as the UK economy drags behind those of the US and EU, unemployment rates will surge, household income will wane and consumer confidence will take a massive hit on the chin. There is only one way the market is going and that is  Down, Down, Down!