Beds Are Burning! 24 March 2023

The real estate and properties transactions totalled US$ 2.34 billion, during the week, ending 24 March 2023. The sum of transactions was 218 plots, sold for US$ 518 million, and 2,177 apartments and villas, selling for US$ 1.29 billion. The top three transactions were for two plots of land sold in Palm Jumeirah for US$ 150 million and US$ 20 million, along with land in Al Thanyah Fourth, selling for US$ 19 million. Al Hebiah Fifth recorded the most transactions, with 94 sales worth US$ 89 million, followed by twenty-five sales in Hebiah Fifth for US$ 68 million and twenty-four sales in Jabal Ali First, valued at US$ 18 million. The top three transfers for apartments and villas were all apartments – a US$ 17 million villa in Mankhool, followed by one in Palm Jumeirah for US$ 15 million and the other in Marsa Dubai for US$ 14 million. The mortgaged properties for the week reached US$ 420 million, whilst 349 properties were granted between first-degree relatives worth US$ 142 million.

Meraas, the developer of City Walk and Bluewaters Island, has unveiled the first residential community within Dubai Design District – Design Quarter at d3. The Dubai developer’s project encompasses three towers, housing 558 units, with construction starting in H2 and completion slated for Q2 2027. Dubai Holding Real Estate is an amalgam of Dubai Properties and Meraas, along with two other entities — North25 and Ejadah. The project will be a combination of 1 B/R, 2B/R and 3 B/R lofts, duplexes and penthouses, along with the usual amenities, including a double-level infinity pool, gym, gardens with jogging tracks, tennis courts and basketball courts; it will have views of Burj Khalifa and Dubai Water Canal.

Deyaar has launched a US$ 300 million residential project, the fifty-two floor Mar Casa, in Dubai Maritime City. It will comprise 1 B/R, 2 B/R and 3 B/R apartments, duplexes and luxury penthouses, with 1 B/R prices starting at US$ 350k; all will have floor-to-ceiling windows and balconies offering panoramic views of both the ocean and Dubai’s skyline. Along with the usual accoutrements, the project will have an indoor and outdoor residents’ lounge, padel court, yoga and breakout spaces, kids play area, and kids club along with a roof-top infinity pool.

According to Knight Frank’s The Wealth Report, prime property prices are still a lot cheaper than other major global cities. It has calculated that for US$ 1 million, a Dubai buyer could acquire 105 sq mt of property, but for the same amount, the respective buyer in Monaco, Hong Kong, New York, London, Paris, Tokyo and Melbourne would only get 17 sq mt, 21 sq mt, 33 sq mt, 34 sq mt, 43 sq mt, 60 sq mt and 87 sq mt respectively. The fact that Dubai prices are a lot lower on a global scale is one of the main reasons why the local market has led in terms of prime property price increases for the second consecutive year in 2022, registering an increase of 44% out of one hundred markets tracked by Knight Frank. Other factors in play include it being a regional hub and positive/progressive government initiatives, allied with a widening global awareness and appeal. On top of that, Dubai has become the most connected city post-Covid in the world last year, up from second position during pre-Covid. The emirate also leads the consultancy’s forecast with prime prices expected to jump 13.5% this year – higher than other ranked global city. Prime properties in Madrid, Mumbai, Cape Town and Sao Paulo are cheaper than the emirate in a list of twenty cities.

Despite the lagging impact of mounting global macroeconomic pressures, including rising interest rates, inflation and the devaluation of emerging market currencies, S&P Global Ratings report is still bullish on the Dubai property market, adding that it is resilient. Its March report also indicates that, for the fourth year in a row, property developers are expected to record positive cash flows in 2023, attributable to healthy pre-sales and favourable payment terms on offer.  Developers will also benefit from the fact that post-handover payment plans appear to be giving way to residual cash collections of about 20% – 30% of the total on handover.

It is reported that Gayo Aviation has signed a Letter of Intent to buy ten nineteen-seater PHA-ZE amphibious planes from Jekta. The Dubai air charter and brokerage firm is expected to use the Passenger Hydro Aircraft Zero Emissions for regional transport to underserved areas; the amphibious aircraft can take off and land on both water and land. According to the Swiss plane-maker, it is taking advantage of enhanced battery technology that will cut per-passenger-per-hour costs by more than 70%, compared to current seaplanes. It is expected that a prototype will be ready within three years and the planes will be flying commercially by 2028.

All the regional central banks raised their benchmark borrowing rates after the US Federal Reserve raised its key interest rate by 25bp; the Central Bank of the UAE raised the base rate applicable to the Overnight Deposit Facility (ODF) by 25bp – from 4.65% to 4.90%.  Three other central banks – Saudi Arabia, Bahrain and Qatar – lifted their benchmark borrowing rates by the same amount.

The Ministry of Economy has increased prices of eggs and poultry products in the country in line with the provisions of Federal Law No. 15 of 2020 on consumer protection. These temporary six month 13% increases are aimed at ensuring a balanced merchant-consumer relationship and preserving food security across all marketplaces at a national level. The ministry took action following a request submitted by a number of companies indicating that they had incurred significant losses over the last period, as a result of high production costs and production inputs from imported material, including fodder, and increasing shipping costs.

This week, the country’s Central Bank announced the launch of its digital currency strategy, appointing G42 Cloud and R3 as the infrastructure and technology providers for implementing the initiative. The main aims of the Central Bank Digital Currency strategy are to improve domestic/cross-border payments, and to enhance financial inclusion, ahead of a move towards a cashless society. CBDC is a risk-free form of digital money issued and guaranteed by the Central Bank and serves as a secure, cost-effective and efficient form of payment and a store of value. The first phase, expected to last until Q2 2024, will include:

• the soft launch of mBridge to facilitate real-value cross-border CBDC transactions for international trade settlement
• proof-of-concept work for bilateral CBDC bridges with India
• proof-of-concept work for domestic CBDC issuance, covering wholesale and retail usage

There was strong demand for a five-year US$ 600 million Sukuk for Air Lease Corporation – the first such bond issued by a US corporation on the local market. ALC is one of the world’s largest aircraft leasing companies and had already raised over US$ 20 billion through the global  bond market. There were orders of over US$ 2.2 billion that allowed the US company to increase its offer to US$ 600 million, with a profit rate of 5.85%, at a spread of 185 bp over US treasuries. ME investors received 80% of the allocation.

DFM shareholders approved the 2022 audited financial statements, at Tuesday’s AGM, whilst also ratifying the Board of Directors’ recommendation of a cash dividend of US$ 37 million, equivalent to 1.68% of the capital. At the same time, it approved a new fixed dividend policy for the Company, that the annual distribution should be at least 50% of its distributable net profit, superseding the current practice of cash dividends every two years.

Because of “very strong demand from retail investors and elevated oversubscription of the UAE Retail Offer”, Al Ansari Financial Services has increased the size of the retail tranche in its initial public offering from 37.5 million to 56.25 million shares, equating to 7.5% of the total shares on offer; the qualified investor offer has been reduced by 18.75 million shares to 693.75 million shares, or 92.5% of the total shares on offer. The price range will be between US$ 0.272 and US$ 0.281 per share.

The DFM opened on Monday, 20 March 2023, 37 points (1.1%) lower on the previous week, remained flat to close on 3,349 by Friday 24 March. Emaar Properties, US$ 0.05 lower the previous week, gained US$ 0.04 to close the week on US$ 1.48. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.66, US$ 3.46, US$ 1.49, and US$ 0.34 and closed on US$ 0.68, US$ 3.51, US$ 1.42 and US$ 0.34. On 20 March, trading was at 95 million shares, with a value of US$ 54 million.

By Friday, 24 March 2023, Brent nudged US$ 1.13 (1.5%) higher to close on US$ 74.98 but was US$ 9.46 (11.2%) down on its month opening of US$ 84.44.  Gold was US$ 1 higher on the week, at US$ 1,981, on Friday 24 March, but up US$ 145 (7.9%) on MTD. Oil experts got their US stock figures in tangle this week expecting a 1.6-million-barrel drawdown in crude inventories, with the American Petroleum Institute later confirming a 3.3 million barrel rise. Meanwhile, US Energy Secretary Jennifer Granholm also said that replenishing the country’s Strategic Petroleum Reserve, at its lowest level in forty years, could take several years.

Russia, the world’s second biggest exporter, announced that it would continue to reduce oil production by 500k bpd until June; the cut had been introduced last month, following the introduction of a G7 price cap, and an EU embargo, on its refined oil products. The International Energy Agency noted that global supply should “comfortably” exceed demand in H1. This follows last week’s trading that saw Brent posting its biggest declines in months, following the collapse of two large US banks and the Credit Suisse debacle. Next week will see the Opec+ meeting, where it will probably adjust its output in response to the changing market conditions – in Q4, the bloc had slashed its collective output by two million bpd in response to a slowing global economy. Oil prices fell on Friday because of demand concerns following on from the ongoing bank crisis and the fear that rising interest rates could slow the global economy.

The IMF is to lend Ukraine US$ 16.6 billion in what is one of the largest financing packages Ukraine has received since the March 2022 invasion; it comes after the world body changed its rules allowing loans to countries facing “exceptionally high uncertainty”. The war has seen the embattled country’s economy contract by 30% last year, with a major part of its capital stock destroyed. The IMF noted that “the programme has been designed in line with the new fund’s policy on lending under exceptionally high uncertainty, and strong financing assurances are expected from donors, including the G7 and EU.” Surprisingly, their 2023 forecast is for a slight contraction or growth.

There are still only two publicly declared bidders – Ineos owner Sir Jim Ratcliffe and Qatari banker Sheikh Jassim – to buy Manchester United, with reports that several other potential investors have recently made their submissions, one of which is US investment company Elliott which has made an offer to purchase a minority stake, irrespective of who ends up owning the club. To date, it is reported that United officials met eight different potential investors over a ten-day period of high-level meetings recently, including Ratcliffe and representatives of Sheikh Jassim. Reports indicate that both parties have submitted their initial bids and both come in around the US$ 5.5 billion mark – and some way off the Glazers’ US$ 7.0 billion level. Latest betting points to the fact that the Glazers will still own Old Trafford by the end of the process.

Latest data from the OECD points to global growth rising  2.6% this year and 2.9% in 2024, driven by improved business and consumer confidence, declining food and energy prices and the re-opening of the Chinese economy. Its latest Interim Economic Outlook also sees headline inflation, in most G20 countries, dipping 2.2% this year to 5.9% and a further 1.4% in 2024 to 4.5%. The decline is down to several factors including tighter monetary policy taking effect, lower energy prices easing, and declining global food prices. But these figures are still above most central banks’ 2.0% inflation target, and it appears that inflation will go down at a much slower pace than it rose. With global inflation being held up by strong service price increases and cost pressures from tight labour markets, it seems that inevitable that many central banks will have to continue with high policy rates well into next year. If only they had taken action earlier when rates started to drift above the 2.0% target in 2021, then much of this would have been avoided.

The OECD also expects that 2023 and 2024 growth in the US, China and the euro area will come in at 1.5%/0.9%, 5.3%/4.9%. and 0.8%/1.5%. It noted that “the outlook today is slightly more optimistic than our previous forecasts, though the global economy remains fragile.” The key concern continues to be the war in Ukraine, and its global impact, with other disrupting factors such as persistence in services inflation, turbulence and uncertainty in global financial markets, and the downward trend in underlying growth prospects.

The UN Conference on Trade and Development has forecast that after a significant slowdown in Q4, driven by geopolitical tensions and macroeconomic headwinds, global trade is expected to remain “subdued” in 2023; it expects that trade will nudge 1.0% higher this quarter, while trade in services is expected to increase by about 3.0%.

Furthermore, Unctad reiterated that:

• commodity prices are expected to remain above pre-pandemic averages, especially for energy, food and metals
• interest rates will continue to edge higher as many central banks try to rein in surging inflation pressures – most of whom should have done something about it eighteen months ago and, if this had occurred, the world would be in a better place economically.
• current record levels of global debt will continue to impact the macroeconomic conditions of many countries

but on the flip side noted that the economic outlook for major economies has been helped by:

• decreasing shipping costs
• a weakening greenback
• rising demand for services will help bolster global trade

The world body summarised by saying that “overall, although the outlook for global trade remains uncertain, the positive factors are expected to compensate for the negative trends.”  Many analysts would argue against this conclusion and that we are heading into more turbulent economic times in 2023.

The world’s third largest economy, which had seen salaries largely unchanged over the past twenty years, has witnessed the country’s largest pay increases this century. On Wednesday, the three hundred top Japanese companies and labour unions heeded Prime Minister Fumio Kishida’s call for higher wages to offset rising living costs. The PM, noting that inflation is at a forty-year high, allied with a weak yen and higher commodity prices pushing up import costs, saw the need for higher pay, with the average 3.0% increase at the “shunto” spring wage negotiations being the biggest since 1997. This is the first time ever that all of Japan’s major automakers had fully accepted union demands. However, these increases were only negotiated with the country’s larger companies, and it appears that, yet again, workers at smaller companies – which make up almost 70% of Japan’s workforce – have not been so lucky. Even now, Japanese salaries remain well behind the average for the OECD grouping of rich countries, as January saw real wages decline at their fastest pace in nine years, (when the sales tax was increased from 5% to 8%). It is estimated that wages have grown just about 5% over the last thirty years, far below an average 35% gain among member countries during the same period.

Japanese shares fell on Friday on the back of the Fed’s 0.25% rate rise, as markets digested the possibility of further hikes and a possible pause in US monetary tightening. Both the benchmark Nikkei 225 Index and the broader Topix declined to 27,385 and 1,955 points respectively.

On Wednesday, the US Securities and Exchange Commission filed a complaint against Justin Sun accusing him of artificially inflating the trading volume of Tronix and BitTorrent and concealing payments made to celebrities, including Lindsay Lohan and Jake Paul, to promote the tokens. Sun was also accused of instructing his employees to conduct massive amounts of simultaneous, or nearly simultaneous, purchases and sales of TRX and BTT without any actual change in ownership so as to appear that normal trading was being carried on, causing investors to suffer losses whilst the companies garnished illegal profits. It is alleged that Lohan and Paul, along with rapper Akon, recording artists Ne-Yo and Lil Yachty, and adult actress Michele Mason, promoted Sun’s companies to their millions of online followers, without disclosing that they had received commission; although these six “celebrities”  settled with the SEC by paying more than US$ 400k in fines , others such as rapper Soulja Boy and pop singer Austin Mahone, who were also named in the SEC’s complaint, have yet to settle with the authority.

Embattled Chinese property giant Evergrande is back in the news again as it announces a US$ 20.0 billion restructuring offshore debt plan which could be seen as a model for other struggling developers. The company, saddled with more than US$ 300 billion in liabilities, famously was unable to pay its debts in 2021. At that time, it was China’s top-selling developer and the world’s most indebted property developer – and also failed to repay US$ 1.2 billion interest on foreign loans.  The developer fell foul of new rules in 2020, that were introduced to control the amount owed by big real estate developers ,and was then forced to sell property at big discounts to maintain some form of liquidity to keep the company running. Under this proposal, creditors will swap Evergrande bonds for new bonds and equity-linked investments backed by the company and two Hong Kong-listed subsidiaries; earlier this week, it was reported that a key group of offshore bondholders had agreed to the proposal, with the company hopeful of convincing other bondholders to agree to the proposal by the end of the month. The company’s overdue financial reports for 2021 and 2022 will also be released in the coming months.

The chances of overseas airlines, including Emirates and flydubai, increasing their foothold into India airspace, have diminished as India’s aviation minister, Jyotiraditya Scindia, urging local carriers to fly long-haul and help establish new hubs as it seeks to recapture control of Indian travel and air space from foreign rivals. Only last month, the new owners of Air India placed a record order for 470 jets whilst IndiGo is also in talks for a new order of more than five hundred planes. Both carriers are taking a forceful approach to take control of the Indian market, whilst making an aggressive push in the international arena. Th Indian market is one of the fastest growing sectors in the world where current demand far outstrips supply and this is the main reason why Mr Scindia is pushing for aerospace companies to step-up local production and finalising rules to safeguard rights of lessors on repossession of jets. The minister also stated that domestic and international passenger traffic through six major metro airports will more than double to 420 million over the next five years, with its aviation fleet almost trebling from seven hundred to 2k over the same period. India’s fleet is set to grow to over 2,000 planes from 700 today. He also confirmed that India was not looking at increasing air traffic quotas with Gulf states and that he is working with some airlines and Delhi airport to create a hub and spoke model in the capital and has spoke about the necessity for India to have its own aviation hub rather than depending on hubs “in either the eastern border of my country or the western border of my country”.

Following the BoE’s decision to nudge rates 0.25% higher to 4.25%, (its highest rate in fourteen years), its supremo, Andrew Bailey, has noted that he is “much more hopeful” for the UK economy, and that the UK was no longer heading into an immediate recession. The unexpected decision came after inflation figures rose again into double-digit territory – 10.4% last month – and following the collapse of the Silicon Valley Bank along with the debacle of Credit Suisse. However, he added the caveat that the UK was “not off to the races”, with the economy expected to grow only slightly in the coming months.

Although 3.5% lower than twelve months ago, UK February retail sales 1.2%, following an 0.9% rise a month earlier, as shoppers turned to discount/second-hand stores, charity shops and auctions last month – and accounting for the 2.4% growth in non-food sales. According to the Office for National Statistics, food sales also headed north but reductions were seen in spending on restaurants and on takeaway meals. These figures arise at a time when inflation returned to double-digit territory. However, closer analysis confirms that retail sales have shown little real growth since the end of 2021, as price rises eat into consumer spending ability.

Not before time the banking world and Switzerland have seen the end of the corrupt-ridden, arrogant and mismanaged Credit Suisse. On Monday, it was announced that the troubled financial institution would be taken over by UBS in a Swiss-government brokered rescue deal, with the latter paying US$ 3.23 billion for the bank and taking over US$ 5.4 billion in losses. Not only had Credit Suisse lost both customer and market confidence, but Switzerland has also taken a major blow to its once-paramount industry. It was estimated that combined, both banks would hold assets of up to 140% of Swiss GDP. It is difficult to estimate the fallout collateral to a country so dependent on the finance sector for its economy. The Neue Zuercher Zeitung noted that “The Swiss bank had a stock market value of CHF 100 billion in 2007, of which CHF 7 billion were left last Friday.”

Over the past fortnight, gold prices have surged by around US$ 150 per troy oz, driven by the fear factors of banking stress and the increased probability of a US recession of sorts over the next twelve months. Even that word ‘contagion’ has reappeared in the banking sector – after laying dormant since the 2008 GFC – following the SVB and Credit Suisse collapses and whether they are the start of another full-blown banking crisis. With Deutsche Bank’s share price falling sharply in recent times, German Chancellor Scholz has had to come out and confirm that the bank remains profitable and there is no reason to doubt its future. However, with its past history, and it having lost 20% of its value this month, along with the cost of its five-year credit default swaps at a four-year high, this could be the proverbial canary in the coal mine. With global banking stocks losing value by the day, there will be many sleepless nights before the current banking crisis has been finally put to bed. Until then Beds Are Burning!