Let’s Get Together and Feel All Right 19 May 2023

Let’s Get Together and Feel All Right – One Love

The 3,105 real estate and properties transactions totalled US$ 2.48 billion, during the week, ending 19 May 2023. The sum of transactions was 191 plots, sold for US$ 311 million, and 2,284 apartments and villas, selling for US$ 1.64 billion. The top three transactions were for plots of land, one in Island 2, sold for US$ 37 million, and the second in Business Bay for US$ 14 million, and the third in Hadaeq Sheikh Mohammed bin Rashid also for US$ 14 million. Al Hebiah Fifth recorded the most transactions, with fifty-four sales, worth US$ 50 million, followed by thirty-four sales in Madinat Hind 4, for US$ 14 million, and fourteen sales in Al Hebiah Third, valued at US$ 15 million. The top three transfers for apartments and villas were for an apartment in Island 2, valued at US$ 33 million, followed by a US$ 29 million apartment sale in Palm Jumeirah, and for a villa in World Islands for US$ 20 million. The mortgaged properties for the week reached US$ 458 million, with the highest being for a plot of land in Business Bay mortgaged for US$ 95 million, whilst seventy-seven properties were granted between first-degree relatives worth US$ 72 million.

Dubai property owners should not be too concerned when they see reports that Dubai real estate sales, in April, had fallen for the first time this year. It is true that, on the month, sales transactions fell 33%, allied with an 18.3% decrease in sales value. But this is an annual trend that occurs during the main holiday season, which is in line with Eid, which goes back every year by up to ten-twelve days. Apart from the usual factors, such as reduced work hours, Ramadan and Eid, this year saw the Christian feast of Easter fall in the same month. This resulted in fewer new properties coming to the market, followed by a drop in property sales viewings and less new sales transactions by the Dubai Land Department. The situation has returned to normalcy, as seen in early May data.

April total property transactions – at 7,615 – were 16.2% higher on the year, bringing the four months’ YTD figure to 36,946 – 43.2% higher, compared to 2022, and a record four-month total. The main driver behind this surge was the off-plan market, up 42.5% in sales, whilst the secondary market witnessed a 2.4% dip in activity. Last year, the value of property deals – at US$ 143.9 billion – reached a new high – and was up 76.5% annually, with the number of transactions rising 44.7% to 122,658.

According to CBRE’s latest report, Dubai property prices increased by an average of 14.5% annually in April – with apartment prices 14.5% higher, at US$ 342 per sq ft, and villa prices up 14.9% to US$ 404 per sq ft; on the month, apartment and villa prices rose by 1.8% and 2.0%. It is estimated that average apartment prices are sill 15.6% lower than they were in 2014, whilst villa prices are 2.7% higher; it is noted that apartment prices in several neighbourhoods have already surpassed 2014 levels. Jumeirah is still the most expensive area to buy an apartment at US$ 645 per sq ft – but this is down 3.1% on the month, and no surprise to see Palm Jumeirah heading the villa segment at US$ 1,263 per sq ft, and 4.0% higher on the month. Downtown Dubai, Palm Jumeirah, Dubai Hills Estate and The Old Town make up the five most expensive areas for apartments, while Jumeirah, Emirates Hills, District One and Jumeirah Islands are the highest for villas.

The latest Knight Frank report noted that Dubai is projected to be the leading location in the luxury global residential market sector in 2023, with an expected growth of 13.5%, driven by a resurgent local economy, the government’s positive and successful response to the impact of the pandemic, and a demand/supply imbalance in the sector that sees demand easily outstripping supply. It also noted that the city’s appeal is its relative “affordability”, with prime homes selling for around US$ 800 per sq ft, “making Dubai one of the most ‘affordable’ luxury residential markets in the world.” In Q1, the sector witnessed eighty-eight sales of luxury homes, (at US$ 10 million or above), valued at US$ 1.63 billion.  Over this period, the main markets – Palm Jumeirah, Emirates Hills and Jumeirah Bay Island – accounted for 64% of total sales, with average transaction prices nearing US$ 2.4k per sq ft.

In the rental market, average rents in 2023 have risen by 25.7% and 26.1% through to April with average rentals for apartments and villas at US$ 28.0k and US$ 84.1k. Palm Jumeirah has the highest average annual apartment rents, at US$ 71.9k, and Al Barari’s US$ 274.7k for villas. Two of the main drivers behind the surge in rents are the introduction of a new visa programme and an influx into Dubai of high-net-worth individuals. There are signs that rentals may be tapering off but still moving higher at a slower pace.

The tenants of The Pointe on Dubai’s Palm Jumeirah have been served eviction notices, with restaurants and other outlets being given a twelve-month period by Nakheel to vacate their businesses on The Pointe, as the developer wishes to redevelop the whole area.  The developer noted that “it remains committed to ensuring the smoothest transition possible for its tenants during this time.” As part of this redevelopment, The Fountain at The Pointe already closed on 15 May.

Dubai Holdings Entertainment, owner of Global Village, Ain Dubai, Coca-Cola Arena, Dubai Parks and Resorts, The Green Planet, Roxy Cinemas and others, has indicated its attention to focus on “enhancing” its existing attractions, as Dubai ramps up to welcome increased visitors as numbers slowly edge to pre-Covid levels. Last year, it closed Bollywood Parks Dubai, which had opened in 2016, but the company has a “master plan” for Dubai Parks and Resorts for the next few years. Its Chief Executive, Fernando Eiroa, has commented that all of the company’s venues were performing “much better” than pre-pandemic levels in terms of revenue, and that the company was “open” to acquisitions if there were any good opportunities. He also added that “the number of attractions we have here are second to none in terms of quality and size, so I believe that we have a lot of room for improvement.”

This week, flydubai and Air Canada signed a new partnership agreement that will give passengers flying between Canada, the ME, East Africa, Indian Subcontinent and Southern Asia more convenient travel options, which will include nine of the local carrier’s routes – including Bahrain, Colombo, Dammam, Jeddah, Karachi, Madinah and Muscat. Pending final regulatory approval, Air Canada’s marketing code will be placed on nine routes operated from Dubai by flydubai, as well via an interline arrangement, from which customers will be able to seamlessly connect in Dubai to all of flydubai destinations. Of these destinations, more than thirty are unique to flydubai and not flown by other partners of Air Canada. Both airlines are keen to improve the connection process in Dubai and hope to expand features and benefits for one another’s loyalty programme members in the near future.

It is reported that Dubai continues to lead the world when it comes to attracting Greenfield FDI projects, with capital inflows 89.5% higher on the year at US$ 12.8 billion – equating to 4.0% of the global total. Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed, tweeted that “these exceptional achievements support the strategic vision outlined by the Dubai Economic Agenda D33” and raises the commitment “to further raise Dubai’s status as a leading global business and investment destination”.

Dubai has been ranked ninth globally in a Brand Finance City index, with the top three locations being London, New York and Paris. The emirate was first for future growth potential, second in strong and stable economy, and third behind only New York and London as a city of global significance. In a wide-ranging survey, respondents were asked about the general reputation and their personal consideration of each city as a place to live, work locally, work remotely, study, retire, visit, or invest in. Other regional locations were included in the survey with Abu Dhabi, Doha, Jeddah and Riyadh being placed 28th, 65th, 77th and 78th respectively.

This week, the federal Ministry of Finance posted that business owners will be subject to the new corporate tax only if their income is above the US$ 272k (AED 1 million) threshold, and also confirmed that personal income, notably from employment, investments and real estate (without licensing requirements) will not be liable for tax, being out of scope.

Eight unnamed banks, operating in the country, have been hit with sanctions for violating Central Bank regulations. It appears that they have been penalised for failing to comply with guidelines on not granting loans or credit facilities to certain beneficiaries. The decision is based on Article 137 of the Decretal Federal Law No. (14) of 2018 relating to the Central Bank & Organisation of Financial Institutions and Activities and the Central Bank notices regarding the beneficiaries of the Nationals Defaulted Debts Settlement Fund (NDDSF) facilities. The Central Bank noted that “the administrative sanctions take into account the banks’ failures to comply with the CBUAE’s instructions not to grant any loans or credit facilities to the beneficiaries of loans granted by the NDDSF, including credit cards.”

With the latest listing – a US$ 272 million (AED 1.01 billion) Islamic Treasury Sukuk – Nasdaq Dubai enhanced its position as one of the leading global centres for Sukuk listings, with a total of US$ 77.7 billion. This T-Sukuk listing was the launch of a series of issuances, by the Ministry of Finance, in collaboration with the Central Bank, in order to attract a new category of investors and support the sustainability of economic growth. It was positively received by the market, being 7.6 times oversubscribed, with the final allocation seeing US$ 136 million (AED 550 million) for both the two year and three-year tranches. Further issues will include other tranches, with various tenures of up to five years initially, followed by a ten-year Sukuk at a later date.

The DFM opened on Monday, 15 May 2023, 24 points (0.7%) lower the previous week, shed 14 points (0.4%) to close the week on 3,545, by 19 May. Emaar Properties, US$ 0.02 higher the previous fortnight, gained US$ 0.03 higher to close the week on US$ 1.67. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.68, US$ 3.81, US$ 1.47, and US$ 0.40 and closed on US$ 0.68, US$ 3.77, US$ 1.46 and US$ 0.39. On 19 May, trading was at 89 million shares, with a value of US$ 47 million, compared to 255 million shares, with a value of US$ 106 million, on 12 May 2023.

By Friday, 19 May 2023, Brent, US$ 17.36 lower (19.2%) the previous four weeks, finally gained US$ 1.62 (2.2%) to close on US$ 75.76.  Gold, US$ 9 (0.4%) lower the previous week, shed US$ 26 (1.8%) to US$ 1,980 on 19 May 2023.

Having previously rejected any allegations, former Audi boss Rupert Stadler accepted his role in committing fraud by negligence in the diesel emissions scandal. He had been on trial since 2020, after parent group Volkswagen and Audi admitted in 2015 to having used illegal software to cheat on millions of emissions tests. Earlier in May, the judge in the case indicated that Stadler would face a suspended prison sentence of up to two years, and a fine of US$ 1.2 million, if he were to confess to a charge of fraud by negligence – lesser mortals would probably have been facing prison sentences for contempt of court and also a more severe charge than ‘fraud by negligence’! He had been on trial since 2020, after parent group Volkswagen and Audi admitted in 2015 to having used illegal software to cheat on millions.

Vodafone, founded by Gerry Whent and Ernest Harrison in 1991, has announced a massive 11% cut, (over the next three years) in its current workforce of some 100k – the biggest job reduction in the company’s history. The twin aims of the strategy, as outlined buy their new CEO, Margherita Della Vale, are to simplify the telecoms group and regain its competitive edge, as it forecast a US$ 1.6 billion drop in free cash flow this year. She also noted that Germany, Vodafone’s biggest market, was underperforming, while Spain, which has suffered cut-throat competition in recent years, was under strategic review. On the news this week, Vodafone shares traded 4.5% lower – and at their lowest level since January.

Another tech giant in the throes of tightening costs has announced 55k job cuts over the next decade. BT, currently employing 130k staff and contractors, said most of the job losses would be in the UK of which some 11k will come in customer services, as staff are replaced by technologies including AI, which would account for about 10k of the total retrenchments. BT, the UK’s largest broadband and mobile provider, is currently continuing to expand its fibre network as it moves away from copper and said that once the work was completed it would need about less than 15k staff to build and maintain its networks; an additional bonus is that the maintenance of new networks would require 10k fewer people.

The Legend of Zelda: Tears of the Kingdom had become the fastest-selling Zelda game so far, having already sold ten million in just three days; this compares to its highest rated game, The Legend of Zelda: Ocarina of Time, only selling 7.4 million copies over its entire run. It seems that its record 2017 Breath of the Wild, selling thirty million units,  will soon be superseded. Tears of the Kingdom has turned over US$ 600 million gross sales to date and is this year’s biggest physical video game launch, selling twice as many physical copies as Hogwarts Legacy. However, it is still some way off Grand Theft Auto V which posted US$ US$ 1.0 billion in sales in its first three days.

Strike has taken over rival embattled troubled online estate agent Purplebricks, founded in 2012, for the token sum of GBP 1, which in its heyday was valued at US$ 1.0 billion. As part of the deal, Strike will take over its US$ 42 million in liabilities. The company’s aim was to create a lower-cost, more flexible estate agent by charging house sellers a flat rate; its customers had to pay the fee regardless of whether the property sold. After initial success, it has seen its share value slump 98% over the past five years. In February, the business had posted that it expected to lose up to US$ 25 million this year, with reports that the company is burning cash to the tune of US$ 3 million on monthly costs, including staff, hosting and marketing. Over the past twelve months, it has been reducing its payroll which now stands at around 750.

Late last week, the founder of Autonomy was finally extradited to the US to face criminal charges over the US$ 11.1 billion sale of his firm to Hewlett-Packard. Mike Lynch is accused of overinflating the value of his software firm when he sold it to HP. At the time of the 2011 sale, Autonomy was the UK’s biggest software company but, within a year of the sale, HP had written off US$ 8.8 billion in the value of Autonomy, claiming it had been duped into overpaying for the company. The man, once described as “Britain’s Bill Gates”, will stand trial on charges including fraud, which he denies, and has been ordered to pay bail of US$ 100 million.

The owner of Vice and Motherboard, Vice Media Group, has filed for Chapter 11 bankruptcy protection and could be acquired by a group of lenders for US$ 225 million – a massive fall from grace when it had been valued at US$ 5.7 billion in 2017. Its investors include Fortress Investment Group, Monroe Capital and Soros Fund Management, and the youth-focused digital publisher said it will continue to operate during the bankruptcy process, and “expects to emerge as a financially healthy and stronger company in two to three months”. The twenty-nine-year-old company, which at the time was part of vanguard of companies set to disrupt the traditional media landscape with edgy, youth-focused content spanning print, events, music, online, TV and feature films. Their portfolio includes My Journey Inside the Islamic State, in which a Vice journalist filmed alongside the terror group in Syria, basketball star Dennis Rodman and the Harlem Globetrotters on a “sports diplomacy” trip to North Korea, and a film about Ukraine’s president, Volodymyr Zelenskiy, by actor Sean Penn. Despite their best efforts, it appears that most of the sector’s advertising spend ended up in the pockets of Google, Meta and other tech giants. It is not the only disruptor in the industry to fall on bad times – BuzzFeed, recently announced the closure of its news division and the laying off of 15% of its workforce, amid serious financial challenges and a slump in advertising revenue.

Following the demise of troubled Swiss lender, Credit Suisse and its apparently enforced takeover by UBS, expects to have to pay an impairment charge of US$ 13 billion and up to US$ 4 billion in potential litigation and regulatory costs stemming from outflows. The bank also estimated that it would take a one-off gain stemming from the so-called US$ 34.8 billion “negative goodwill”, as it acquired the bank at a fraction of its book value. It has been reported that it was rushed into buying Credit Suisse, (given less than four days for due diligence), in a deal it did not want.

Another victim from the Jeffrey Epstein’s alleged sex trafficking ring, Deutsche Bank has agreed to pay US$ 75 million to settle a lawsuit claiming that it had enabled the international paedophiliac. Filed by an unnamed woman, who alleged that the banking giant continued to do business with Epstein, despite knowing that his accounts were used to facilitate the abuses, and that she herself had been trafficked by Epstein, the class action was on her behalf and other women who had allegedly been abused by the late American financier. The German bank has previously sought to have the lawsuit dismissed, and, although declining to comment on the actual settlement, did add that the bank had invested more than US$ 4.3 billion to improve its controls, training and operational processes, and grown its team dedicated to fighting financial crime.

Despite RBA governor Philip Lowe repeatedly saying that Australia is walking a “narrow path” to lower inflation without a recession, an internal September 2022 report estimated that Australia’s risk of recession over this year and next could be as high as 80%; it also indicated that more aggressive efforts to bring inflation down, through faster rate rises, would see unemployment rise more quickly. The report concluded that “if a recession does occur, it is most likely sometime over the next four quarters”. There are indicators that the RBA is unlikely to raise rates much further, as the latest Statement on Monetary Policy does not expect inflation to fall within its target until June 2025 and the unemployment rate only reaching 4.5% by then.

China reckons that, in Q1, it surpassed Japan as the world’s biggest exporter of cars, at 1.07 million vehicles – 58.0% higher than in the same period a year earlier – 11.2% higher compared to Japan’s 954k. Only last year, China beat Germany to second place on the world chart with 3.2 million vehicles to 2.6 million. China’s exports were boosted by demand for electric cars and sales to Russia. Last, year, Chinese carmakers – including Geely, Chery and Great Wall – saw their market share in Russia jump, after rivals, including Volkswagen and Toyota, quit the country following the invasion of Ukraine. China’s Q1 exports of new energy vehicles, which includes electric cars, rose, on the year, by more than 90%. Among the country’s top brands are Tesla’s China arm, SAIC – the owner of the MG brand – and BYD, which is backed by veteran US investor Warren Buffett, with Tesla’s huge newly-opened Shanghai manufacturing plant capable of producing 1.25 million vehicles.

Having already committed to making EVs in the UK, Stellantis, owner of Vauxhall, Peugeot, Citroen and Fiat is concerned that it could change its mind because of the threat of having to pay tariffs of 10% on exports to the EU due to rules on where parts are sourced from. Stellantis warned that if the cost of EV manufacturing in the UK “becomes uncompetitive and unsustainable, operations will close”. In 2021, the world’s fourth biggest car maker had pledged that the future of its Ellesmere Port and Luton plants was secure. Because it was “now unable to meet these rules of origin”, (as 55% of the value of an electric car should originate in the UK or EU to qualify for trade without tariffs), due to the recent surge in raw material and energy costs, this has become impossible. The UK government’s standard response continues to be that it was “determined” UK car making would remain competitive.

The other major problem facing UK carmakers concerns the lack of electric car battery plants in the UK, when compared with the US, China and EU which are pouring subsidies into the sector. Recently, former Nissan executive and battery start-up businessman Andy Palmer said the UK was “running out of time” to develop its own battery manufacturing industry. Whilst Whitehall fiddles it seems that the French opportunist, President Emmanuel Macron, has this week met with Tesla’s Elon Musk, to discuss the possibility of investing in a battery plant – or gigafactory – in France. The Spanish government is currently trying to woo the UK’s biggest car manufacturer, Jaguar Land Rover, into building a gigafactory in Spain. If there is no production in the UK by 2027, then there is every chance, with a tightening of regulations, UK exporters will find it impossible to sell cars overseas tariff free.

One possible bright light is that Tata Jaguar Land Rover is looking at building a multi-billion-dollar electric car battery factory in Somerset; if this were to happen, 9k jobs would be created. Any investment would be reliant on government support in the way of subsidies and incentives, because several European countries would pay such grants to entice this level of investment. The Sunak government is facing pressure from the MV sector to increase the capacity of battery production in the country, amid fears car making plants may leave the UK.

Latest data shows that global debt – at US$ 305 trillion – is US$ 45 trillion higher than its pre-Covid level and is expected to continue to head north in the future; Q1 saw a US$ 8.3 trillion hike. the Institute of International Finance said in its latest Global Debt Monitor report was concerned over leverage in the financial system as the debt balance nudges to record highs. In Q2 and Q3 2022, there were marked falls in a period of almost global monetary policy by national banks; in Q4, the global debt pile started moving higher again, as central banks started to slow the pace of rate rises because of fragile market sentiment. The latest quarterly increase was mainly attributable to government borrowing remaining high over a potential credit crunch following the recent turmoil in the US and Swiss banking sectors.

On Saturday, the three-day meeting of the G7 finance leaders ended with a warning of heightening global economic uncertainty, overshadowed by a US debt ceiling stalemate, recent US bank failures, a slowdown in China’s economy and the ongoing war in Ukraine. The G7 central bank chiefs also discussed ways to fight stubbornly high inflation. One of the main topics on the agenda related to supply chains, with host nation Japan spearheading efforts to diversify supply chains and reduce their heavy reliance on China; it was decided to set a year-end deadline for launching a new scheme to diversify global supply chains. The meeting also reiterated its condemnation of Russia’s invasion of Ukraine and pledged to strengthen monitoring of cross-border transactions between Russia and other countries. It is about time that the G7 unite, (not only in words but also by action) and agree to Let’s Get Together and Feel All Right – One Love!

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