Train Wreck!                                                                                  06 October 2023

The 1,445 real estate and properties transactions totalled US$ 2.59 billion, during the week, ending 06 October 2023. The sum of transactions was 248 plots, sold for US$ 477 million, and 1,197 apartments and villas, selling for US$ 866 million. The top three transactions were all for plots of land, one in Jumeirah Second sold for US$ 28 million, the second and third in Al Hebiah Fourth for US$ 27 million and for US$ 19 million. Al Hebiah Fifth recorded the most transactions, with seventy-eight sales, worth US$ 87 million, followed by sixty sales in Madinat Hind 4 for US$ 27 million, and eighteen sales in Madinat Al Mataar, valued at US$ 35 million. The top three transfers for apartments and villas were for a villa in Palm Jumeirah, valued at US$ 60 million, another in Zabeel First and US$ 55 million, with an apartment in Al Thanayah Fourth selling for US$ 26 million. The mortgaged properties for the week reached US$ 1.14 billion and 110 properties were granted between first-degree relatives worth US$ 107 million.

Casa, Damac’s latest launch, located in Al Sufouh, next to Dubai Media City, has been inspired by holiday living, whilst its design is an inspiration from the lotus flower. At its heart is the “Flying Island,” an oasis enveloped by water and all units feature circular outdoor terraces, capturing 270-degree water views. The tower will offer 1, 2, 3, 4 and 5-bedroom apartments, with each having its own private lift, and oasis-vibe pool. Damac is set to introduce one of Dubai’s first scuba simulators, offering diverse virtual reality experiences, from the Red Sea to the Indian Ocean or even the wonders of space. The pools will be surrounded by palm gardens. Prices will start at US$ 681k.

The RSG Group has launched its latest project – Fairmont Residences Dubai Skyline – slated for handover by the end of Q1 2025. It has already invested US$ 409 million in the building, which is 65% completed. Located on SZR, there will be one hundred and twenty-two fully furnished 2 B/R and 3 B/R apartments, as well as the Sky Mansion and Sky Palace residences. The Dubai-based real estate developer has also earmarked US$ 1.36 billion for developments over the next five years.

In the nine months to 30 September, sales of US$ 10 million plus residences in Dubai topped two hundred and seventy-seven. In Q3, the number of such homes sales was 40.7% higher on the year, with sales totalling US$ 1.59 billion for eighty-eight transactions. Knight Frank noted that “demand for luxury homes in Dubai remains resilient and supply continues to stubbornly lag demand.” The most popular areas were Palm Jumeirah, Emirates Hills, Umm Suqeim, MBC City and Jumeirah Bay Island, with sales values of US$ 825 million, US$ 190 million, US$ 142 million, US$ 125 million and US$ 118 million. The average transacted price for homes was US$ 1,785 per sq ft In May, the consultancy had forecast that global high net worth individuals plan to spend US$ 2.5 billion in the Dubai property market in 2023.

Latest figures from CBRE show that Dubai apartment rates have reached their highest level since January 2017, whilst villa rents are at their highest ever; although there are no signs of either falling, rates have started to slow. Overall, in the year to 31 July 2023, average rents have increased by 22%, with apartments at US 26.02 per sq ft, (US$ 26.08 in 2017) and villas at US$ 24.88 per sq ft. This latest bull run started two years ago and followed a bear run of over six years from mid 2015. DLD figures indicate that there had been a 43.5% hike in the number of tenancy contracts to 325.8k, compared with the same period in 2019. The consultancy noted that long gone have the days of a rent-free month, added to a 12-month contract, discounts and payment with four to six cheques, when supply had outpaced demand. Interestingly, in July, the average premium for new apartment rental contracts compared to renewed contracts stood at 20.1%, and that the total number of new contracts registered dropped by 12.6%, while renewed registrations grew by 29%.

Resonance’s World’s Best Cities Report ranks Dubai sixth globally behind London, Paris, New York, Tokyo and Singapore but rated a better city in which to live, work and prosper than San Francisco, Barcelona, Amsterdam and Seoul. Among the regional cities, Abu Dhabi is ranked second in the Arab world and 25th globally, followed by Riyadh (28), Doha (36), Kuwait (58) and Muscat (89). Under the key indexes of liveability, lovability and prosperity, the sub-index covers the city’s walkability, sights and landmarks, park and recreation, airport connectivity, museums, nightlife, restaurants, shopping, attractions, educational attainment, human capital, Fortune 500 Global Companies, number of start-ups and others.

Flydubai received high praise by becoming the first ever recipient of the prestigious Four-Star Major Airlines award by the Airline Passenger Experience Association. The award is based on a number of criteria including third party passenger feedback and insights gathered through APEX’s partnership with TripIt from Concur, the world’s highest-rated travel-organising app. The rating recognises flydubai’s strong business model in making travel accessible to new and previously underserved markets which has enabled its continued growth. The fourteen-year-old carrier, with a fleet of seventy-eight 737 planes, operating to one hundred and twenty destinations, has always been committed to enabling free flows in trade and tourism and opening up underserved markets. It will open five new routes over the next five months – Cairo, Poznan in Poland, Mombasa and Langkawi, as well as Penang, APEX CEO Dr Joe Leader commented, “in a league of their own, flydubai has impressively secured the 2024 APEX Four Star Major Airline rating. This distinction, influenced by over one million passengers spanning nearly six hundred airlines, highlights flydubai’s dedication to continuously enhancing the passenger journey”. He concluded, “on behalf of APEX, I salute flydubai for their consistent strides in elevating the best value in airline experience in every class of service.”

This week, HH Sheikh Ahmed bin Saeed Al Maktoum chaired the twenty-fourth meeting of the Dubai Fee Zones Council that discussed regulating the free zone-licensed establishments’ mainland activities, provided that legal procedures are followed. These activities include:

• obtaining a permit from the respective licensing authority
• coordinating with the relevant free zone authority
• opening a branch in the emirate to do business activities from the same location

He also hinted to a series of measures that the emirate’s free zones are working on, with concerned authorities, to enable companies to choose their preferred free zones in the emirate, build their capabilities, and expand globally. The Council members agreed on the importance of highlighting opportunities for Emirati talent at free zone-based companies and introducing them to companies searching for new talent. The Council was briefed on the digitalization and data management project for the outcomes of the Dubai Demand Side Management Strategy 2030, which will save 30% in electricity and water consumption, supporting the achievement of sustainability by 2030.

Because it is Dubai, it stands to reason that the next Dubai Shopping Festival will be bigger and better than any of the previous ones and this year’s announcement did not disappoint. Dubai Festivals and Retail Establishment, the organiser of the festival, posted that the twenty-ninth edition of the DSF will start on 08 December and close thirty-eight days later on 14 January 2024. The festival features live music performances from international as well as regional musicians and speakers, basketball competitions, talks, exclusive shopping and a variety of art installations, with Sole DXB joining the opening celebrations from 08 to 10 December in Dubai Design District.

In an effort to offer investors more security and adopt international standards, the DIFC is to introduce new regulations on digital assets, aiming to ensure that its laws keep pace with the rapid developments in international trade and financial markets arising from technological developments. The new regulations will ensure that the legislation will ensure more investor security and be in line with international standards. DIFC’s new proposed digital assets law sets out the legal characteristics of a digital asset, its proprietary nature, how it may be controlled, transferred, and dealt with by interested parties. The on secured transactions, and it has been adapted to take account of specific factors relating to the DIFC. The DIFC recorded a 35.4% H1 increase in FinTech and innovation companies to eight hundred and eleven and, in total, has 1.44k financial and innovation related companies – a 15% year-on-year growth.

September’s UAE PMI indicates a marked uptick in new non-oil business volume, (up 1.7 to 56.7), with growth seen in new business volumes and new client onboarding, as competitive pricing and robust underlying economic conditions boosted demand. The New Orders index has now jumped 7.0 to its highest level since pre-pandemic June 2019. Although expansions in both inventories and employment softened, output rose quicker and business confidence jumped, while stronger input buying growth drove cost pressures higher. Because of previous months’ growth in hiring and inventory levels, capacity had already been boosted resulting in the weakest rise in backlogs of work in over two years; job creation also slowed in September. Demand strength reportedly arose from both domestic and external markets, with new orders from foreign clients rising at their quickest rate in over four years. Overall, selling prices dipped slightly but some firms did cut prices for more sales revenue, although others headed in the other direction in order to cover rising costs. Because of ongoing inflationary pressures and stronger input demand, there were increases in raw material prices, and consequently, purchasing (and overall) costs rose solidly and at the quickest pace for more than a year. Businesses enjoyed a further improvement in supply chains, as delivery times shortened to the greatest extent since July 2019. Another improvement in business confidence saw it rise to its highest level since March 2020.

This week HH Sheikh Mohammed bin Rashid Al Maktoum issued Decree No. (40) of 2023 pertaining to the formation of the Board of Directors of the Investment Corporation of Dubai, chaired by Sheikh Hamdan bin Mohammed, Crown Prince of Dubai. His brother, HH Sheikh Maktoum bin Mohammed, First Deputy Ruler of Dubai, will serve as Vice Chairman, with other Board members including HH Sheikh Ahmed bin Saeed Al Maktoum; Mohamed Hadi Al Hussaini, Reem bint Ibrahim Al Hashemy; Sultan bin Saeed Al Mansouri, Mohammed Ibrahim Al Shaibani, (who will also serve as its MD), Abdulrahman Saleh Al Saleh and Helal Saeed Al Marri.

A report by Fitch Ratings indicates that UAE banks are the GCC leaders when it comes to profitability and this trend is expected to continue on the back of a strong operating environment.  All GCC banks benefitted from higher oil prices and soaring interest rates. UAE lenders have made the most from rising rates, with average net interest margins (NIMs) 100 bp higher in H1, compared with 2020; Qatar’s banks’ NIMs were only 11 bp higher, with Saudi remaining flat. Moody’s Investors Services has recently posted that profits of the four largest banks in the UAE – First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank – grew sharply in H1. S&P Global Ratings were also bullish on UAE’s banks noting that they are expected to record stronger profitability in 2023, on the back of higher NIMs and lower-cost business models, amid booming non-oil economic growth in the region.

After price rises over the past three months, the UAE Fuel Price Committee again increased all October retail petrol prices:

• Super 98: US$ 0.937 – up by 0.6% on the month and up 18.2% YTD from US$ 0.793  
• Special 95: US$ 0.907 – up by 0.6% on the month and up 24.8% YTD from US$ 0.727
• Diesel: US$ 0.973 – up 2.8% on the month and up 8.6% YTD from US$ 0.896
• E-plus 91: US$ 0.888 – up by 0.9% on the month and up 25.8% YTD from US$ 0.706

There are reports that e& has submitted an offer to increase its stake in Vodafone to 20%, having originally taking a 9.9% stake for US$ 4.4 billion in May 2022, which had grown to 14.61% by April 2023. The UAE operator’s cooperation with Vodafone is awaiting regulatory approvals in countries where the British company operates, which “include an agreement to regulate relations between the two companies, and also the possibility of increasing our stake to 20%.”

The DFM opened on Monday, 02 October 2023, 5 points (0.1%) lower the previous week gained 1 point to close the trading week on 4,165, by Friday 06 October 2023. Emaar Properties, US$ 0.28 higher the previous three weeks, shed US$ 0.07 to close on US$ 2.12 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.70, US$ 4.85, US$ 1.59, and US$ 0.43 and closed on US$ 0.70, US$ 4.92, US$ 1.58 and US$ 0.45. On 06 October, trading was at 108 million shares, with a value of US$ 79 million, compared to 150 million shares, with a value of US$ 151 million, on 29 September 2023.

By Friday, 06 October 2023, Brent, US$ 1.80 higher (1.8%) the previous week, shed US$ 10.98 (11.5%) to close on US$ 84.45. Gold, US$ 119 (6.2%) lower the previous three weeks, dropped US$ 37 (2.0%) to US$ 1,832 by 06 October 2023.  

Brent started the year on US$ 85.91 and gained US$ 6.22 (7.2%), to close 30 September 2023 on US$ 92.13. Meanwhile, the yellow metal opened 2023 trading at US$ 1,830 and gained US$ 35 (1.9%) to close YTD on US$ 1,865.

Although oil prices nudged slightly higher today, they still ended the day with their biggest weekly loss since March 2023, driven by demand concerns. On Thursday, Brent traded 2.03% lower at US$ 84.07 and had then tanked US$ 10.00 since the end of September. The US Energy Information Administration posted that American crude stocks, an indicator of fuel demand, fell by 2.2 million barrels in the last week of September, whilst total petroleum stocks increased by 6.5 million barrels in the same timeframe. There is every chance that the recent bull run has come to an end, with the market clearly in overbought territory. Last month, Brent was steaming to the US$ 100 level but now it will be struggling to keep its head above US$ 90 for the rest of the month.

Elon Musk is keeping to his earlier in the year promise that he would aggressively cut EV prices in 2023, with the latest being 2.7%, (to US$ 39.0k) and 4.2%, (US$ 48.5k), reductions for Tesla’s Model 3 and Model Y; last month, prices were cut on his other two – Model S and Model X cars. Since the beginning of the year, Models 3 and Y have seen 17% and 26% price reductions. The twin aims of the price slashing were to fend off competition from newcomers and legacy players, as well as to counter the effect of a slowing EV market. Earlier in the week, Q3 results indicated that Tesla missed market estimates for deliveries, after planned upgrades at its factories to roll out the newer version of the Model 3 mass-market sedan forced production halts.

In the twelve months to 30 June 2023, and with increasing regulatory oversight, the value of UAE’s cryptocurrency transactions almost reached US$ 35.0 billion, but declined 17% in the period; the country fared better than its neighbours, with Lebanon, (not surprisingly), Jordan, Oman and Qatar posting falls of 96%, 55%, 49% and 26% respectively The report, by blockchain data platform Chainalysis, reported that the Saudi market performed the best of all regional countries, with a 12% uptick. The Mena region is ranked the sixth biggest in the crypto-economy world, with almost US$ 389 billion in on-chain value received in the twelve months, equating to 7.2% of global transaction volume. Earlier in the year, the federal government established a law to regulate this sector and also set up the Virtual Assets Regulatory Authority was established. The Chainalysis report found that 67% of UAE cryptocurrency transactions year were driven by institutional investments valued at more than US$ 1 million; crypto transfers for professional investments, (US$ 10k to US$ 1 million), and retail investments (up to US$ 10k) accounted for the balance.

In a move to exit bankruptcy protection, a consortium group, including the Danish state, will invest US$ 1.175 billion in Scandinavian Airlines, with Air France-KLM spending US$ 145 million to acquire a 19.9% holding in SAS. Mainly due to the negative impact of Covid, along with a long damaging strike by its pilots, the carrier filed for Chapter 11 bankruptcy protection in the United States, in July 2022. Air France-KLM chief, Ben Smith, noted that “this cooperation will allow Air France-KLM to enhance its position in the Nordics and improve connectivity for Scandinavian and European travellers,” and that it “is determined to play an active role in the consolidation of European aviation.” The airline is also keen to buy a stake in Portugal’s TAP, which is being privatised after a government rescue.

Yesterday, Metro Bank’s shares plunged over 30%, (after hefty falls the previous month), after reports it was seeking to raise a further US$ 730 million to bolster its finances, despite the bank, trying to reassure investors, commenting that it “continues to consider how best to enhance its capital resources”. Last month, regulators had refused the bank’s request to lower the capital, or cash, requirements attached to its mortgage business. It is now considering a number of options, (including a US$ 122 million share sale, increased borrowing and a potential sale of some assets), to boost its balance sheet before some US$ 425 million worth of debt will need to be refinanced in October 2025. Metro also confirmed that its finances remain strong, and it continues to meet all regulatory requirements. As with other UK banks, customer deposits up to US$ 103k are guaranteed by the Financial Services Compensation Scheme. Metro Bank opened in 2011, following the GFC, and became the first new bank in the UK in over a century; it has over 2.7 million customers. The bank posted its first half yearly profit in H1 since an accounting scandal in 2019, when it emerged that risk attached to some of its loans had been underestimated. Despite this improvement, its share value has fallen over the past five years from US$ 4.27 billion to its current level of under US$ 120 million.

The IMF MD, Kristalina Georgieva, said global economy is resilient, but challenged by weak growth and deepening divergence, with H1 bringing “some good news, largely because of stronger-than-expected demand for services and tangible progress in the fight against inflation. This increases the chances for a soft landing for the global economy. But we can’t let our guard down.” As it has always been, global economic recovery from a recession has always been the same – slow and uneven – and the latest uptick is no exception. In this cycle, stronger momentum has been witnessed in the US, India and several other emerging economies. On the flipside, most advanced economies are slowing down, whilst Chinese economic activity is below par, as many countries struggle with weak or no growth. The current pace of global growth remains quite weak, well below the 3.8% average in the first two decades of this century prior to the pandemic.  The IMF supremo noted that “economic fragmentation, threatens to further undermine growth prospects, especially for emerging and developing economies”. The end result is that there is “divergence in economic fortunes between and within different country groups. Part of it comes from economic scarring”.

During a slowdown or recession, many things happen such as rising unemployment, falling incomes, reduced business confidence, reduced access to credit, higher interest rates etc. When a nation starts to come out of the cyclical downturn, the “economic taps” cannot just be turned on so everybody returns to work, incomes return to pre-downturn levels, confidence return immediately to businesses, credit lines return to previous levels and rates fall to pre-crisis levels. This is when “economic scarring” occurs that results in long-lasting damage to individuals’ economic situations and the economy more broadly. A recession may last a matter of months, but its impact will be felt for a much longer time.

The IMF estimates that the cumulative global output loss from successive shocks since 2020 amounts to US$ 3.7 trillion and bearing in mind the “divergence in economic fortunes”, the IMF has a strategy to help affected countries identify policy choices and pursue successful growth strategies. Three policy priorities stand out – reinforce economic/financial stability, address infrastructure gaps, as well as improvement in governance and state capacity to foster inclusive growth.

In April, the WTO had forecast a 1.7% growth in 2023 global merchandise trade, which has now been pared back to 0.8% because of the continued slump that began in Q4 2022. The latest update also expects real world GDP to grow by 2.6% at market exchange rates in 2023 and by 2.5% in 2024. Trade growth should pick up next year accompanied by slow but stable GDP growth. However, the WTO warned that “the projected slowdown in trade for 2023 is cause for concern, because of the adverse implications for the living standards of people around the world. Global economic fragmentation would only make these challenges worse, which is why WTO members must seize the opportunity to strengthen the global trading framework by avoiding protectionism and fostering a more resilient and inclusive global economy.”

This week, hit by the double trouble of increased competition, (by the likes of Shein and Fashion Nova), and declining consumer spend, as shoppers cut back on non-essentials, fast fashion firm Boohoo slashed its sales forecast by 17%; H1 sales to 31 August saw sales at US$ 888 million, down 17% on the year, with its loss rising 71.4% to US$ 32 million. The on-line retailer had identified US$ 152 million of cost savings it will make to try to get the business back on track; to date, it has started charging for return goods and sourcing goods from Europe rather than from Asia. The Manchester-based retailer has also made “substantial progress” on big targets, including the launch of a US distribution centre. Boohoo is not the only fast fashion giant to report losses and others, including Asos, in the sector have been reporting large deficits.

In 2018, the then Prime Minister Giuseppe Conte pledged to raise some US$ 19 billion from asset disposals in a failed bid to help lower the debt and reassure investors. Now, Prime Minister Giorgia Meloni is aiming to raise over US$ 22 billion, equating to almost 1% of GDP, in assets sales through to 2026. The country’s debt-to-GDP ratio stands at a worryingly high 140.2% and the aim of the exercise is to marginally lower this figure to 139.6%. Without this sale, the ratio would head north and would not help the country’s economy if it were to rise; the current debt figure is the second worst debt pile in the eurozone. It is reported that the public assets to be sold have already been approved and agreed with the EC.

In Switzerland, legislators have charged Gulnara Karimova, the daughter of Uzbekistan’s former president, with running an international crime syndicate that laundered hundreds of millions of dollars in bribes.  The case concerns the period of 2005-2013, following which she has been incarcerated in Uzbekistan since 2014, convicted of embezzlement. The Swiss courts have snatched assets worth in the region of US$ 870 million, whilst the daughter of autocratic leader Islam Karimov continues to deny all bribery charges, mostly relating to lucrative telecoms contracts. She formerly had a high profile in the ex-Soviet state, with her own jewellery line and entertainment television channel, as well as releasing pop singles under the name Googoosha. Karimova is accused of taking bribes, using a fake company known as The Office, in return for access to Uzbekistan’s telecoms sector and of laundering the money through Swiss bank accounts and an elaborate network of accounts in other countries, and was not afraid to bring in the “heavies” when needed. Her organisation also came under criminal investigation in Sweden, France, Norway, the Netherlands, the US and UK where the UK’s Serious Fraud Office (SFO) took control of three luxury properties, worth more than US$ 24 million, owned by the lady., who had been Uzbekistan’s ambassador to the United Nations in Geneva, until 2013.

The British Retail Consortium noted the first monthly decline, (of minus 0.1%), in more than two years in food prices, with one of the main factors being intense competition between supermarkets to maintain their market share. There were price falls in dairy goods, margarine, fish and vegetables – which are often own-brand lines. Although easing, grocery inflation – the annual rate at which food prices are rising – is still at historic highs of 9.9% in September, whilst overall shop price inflation – which includes non-food items – fell to 6.2%, the lowest rate for a year. The consensus is that price rises will continue to slow in the foreseeable future but could be derailed by any number of factors such as higher interest rates, climbing oil prices, global shortages of sugar, as well as the on-going supply chain disruption from the war in Ukraine. As a result of the inflation rate dipping to 6.7% in August, the BoE decided to keep rates on hold at 5.25%, after fourteen consecutive months of rises. However, its governor, Andrew Bailey, said inflation was expected to continue to fall, but there were “increasing signs” that higher rates were starting to hurt the economy.

Although UK house prices will continue to fall into 2024, declines will be at a reduced pace, with Halifax noting that September prices were 4.7% lower on the year, and 0.4% on the month. September was the sixth consecutive monthly price fall, with the cost of a typical UK residence meant the cost of a typical UK home was now US$ 339.8; this was still US$ 48.1k higher than in March 2020 when prices started to shoot up during the pandemic, but US$ 17.1k below the August 2022 peak. The country’s biggest mortgage lender also posted that high interest and mortgage rates would continue to impact the market and commenting that “homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.” About a third of all sales are by cash buyers.

According to Rightmove, the average queue of tenants requesting to view a rental property has lengthened from by five to twenty-five over the past five months, as compared to just six telephone or email requests in pre-pandemic 2019. Latest figures also show that the average advertised rent for a new let outside of London has risen to a record US$ 1.557 per month – a 10% Q3 hike on the year. Average advertised rents on new lets in London were 12.1% higher at US$ 3.2k.

There was no surprise to finally hear Rishi Sunak pull the pin on the northern leg of the HS2 high speed rail link but that up to US$ 44 billion, (the amount saved from cancelling this leg of the HS2 project), would be spent on alternative rail, road and bus schemes instead.; he blamed huge costs and long delays for the decision. He said that his plans would see “hundreds” of alternative projects funded, such as:

• Building the Midlands rail hub, connecting 50 stations
• Upgrading the A1, the A2, the A5 and the M6
• Building a Leeds tram system
• Funding the Shipley bypass, the Blyth relief road and seventy other road schemes
• Electrifying train lines in north Wales
• Resurfacing roads across the country
• Extending the US$ 2.44 (GBP 2.00) bus fare until the end of December 2024, which was due to rise by 25%

However, the prime minister dressed up this turnaround, it is plain that his government has abandoned its mission to “level up” different areas of the UK outside London; the high speed rail project was intended to link London, the Midlands and the north of England. He thinks that east-west links were “far more important” than those linking up the north and the south of England, and that changes to travel seen since the coronavirus pandemic meant that the economic case for HS2 “has been massively weakened”. For the embattled Sunak government, this is just another Train Wreck!