Life For Rent! 25 August 2023
The 3,229 real estate and properties transactions totalled US$ 6.29 billion, during the week, ending 25 August 2023. The sum of transactions was 183 plots, sold for US$ 362 million, and 2,361 apartments and villas, selling for US$ 1.57 billion. The top three transactions were all for plots of land, one in Madinat Dubai Almelaheyah, sold for US$ 26 million, Palm Jumeirah for US$ 21 million and in Al Barshaa South Second for US$ 17 million. Madinat Al Mataar recorded the most transactions, with fifty-one sales, worth US$ 50 million, followed by twenty-four sales in Al Hebiah Fifth for US$ 16 million, and nineteen sales in Salih Shuaib 1 valued at US$ 19 million. The top three transfers for apartments and villas were all for Palm Jumeirah apartments, valued at US$ 18 million, US$ 16 million and for US$ 15 million. The mortgaged properties for the week reached US$ 4.29 billion, whilst 121 properties were granted between first-degree relatives worth US$ 82 million.
This week, Samana Developers launched its US$ 82 million Samana Golf Views residential project in Dubai Sports City. The new project, overlooking the Els Club, is the first project in the neighbourhood which has built-in private pools. The G+P+14-floor tower, part of multiple project launches being planned this year, spanning 299k sq ft, will have a mix of 243 apartments that include 128 studios, fifty-two one-bedrooms, sixty-two-bedrooms, and three three-bedrooms. Prices start at US$ 177k, (with an eight-year flexible payment plan) and scheduled for handover by Q2 2026. Other facilities include a swimming pool, a large leisure pool deck, a kids’ pool, a kids’ play area, VR Golf Experience, a sauna and steam room, sports courts, a skate park, a jogging track, an outdoor cinema, a barbeque area, an indoor gym, an outdoor gym, a walking river and the standard 24 hours security.
For the past twenty-five years, Dubai has always been a magnet for wealthy international investors and businessmen looking for a progressive economy, a sustainable property market, a safe environment and a life of luxury. Last year, there was a notable increase in the number of wealthy Russians migrating to the emirate. It is reported that the 47% hike in prime property prices is largely down to the Russian influx and their investment in Dubai property which has turned the market on its head. Last year, Dubai recorded more than 86k residential sales transactions, breaking the previous 2009 high of 80k, along with US$ 56.6 billion in property sales, over 80% more than in 2021. 2023 is again breaking all records. With this in mind, Realiste’s founder, Alex Galt has warned “I would likely advise investors to carefully monitor the current situation in the Dubai real estate market. While it has experienced a period of prosperity due to Russian investments, there are potential challenges ahead, such as soaring rent and property prices. Investors should conduct thorough market research, assess the risks, and consider diversifying their portfolios to mitigate any potential negative impacts in the future.” There is a feeling that the wave of Russian Investment is slowing, and that Russians are no longer in the top place with the three leading sources being Europeans, (with 30% of the market), Indians (20%) and the Chinese.
There is a feeling that, apart from the upmarket luxury market prices which continue to soar, other property prices in Dubai are stabilising, after a record two-year stint of double-digit price hikes. Over the past twelve months, and the past quarter, villa and apartment prices have risen by 15%/14% and 3%/2% respectively. In Q2, the number of new launches is reminiscent of the pre-2008 GFC crisis, with new recent projects including, inter alia, Emaar’s US$ 20 billion The Oasis by Emaar, the multi-billion-dollar Palm Jebel Ali and Al Habtoor Tower. According to Asteco, around 11k residential units were delivered in Q2, comprising 9.4k apartments and 1.6k villas. Although villa supply slowed over the quarter, it is expected to pick up again in H2 and end 2023 with 6.5k new villas added in the year, to bring total unit additions to almost 30k units.
Asteco reports that prices continued to rise in most locations, with some of them posting higher returns than others. The high-to-luxury-end and mid-to-high-end areas are rising, though at a slower pace ranging between 3% – 4%, with a average 4% increases noted in DIFC, Palm Jumeirah, The Greens, The Views and Jumeirah Lake Towers, whilst prices in Downtown, Business Bay, Dubai Marina, Jumeirah Beach Residence and Jumeirah Village were 3% higher. However, Discovery Gardens, Sports City and International City prices have dipped to zero on the quarter. In the villa sector, The Meadows was the stand-out performer in Q2, with prices moving 6% higher on the quarter, as Dubai Hills Estate, Jumeirah Park and Arabian Ranches saw price hikes touching 5%. Damac Hills 2 (Akoya Oxygen), Jumeirah Village and The Springs posted 3% increases, with Palm Jumeirah villas only 2% higher.
In the latest Knight Frank Prime Global Cities Index, Dubai has retained its top position – a position that it has been placed in for the past eight quarters. On the twelve months to 30 June 2023, luxury properties have risen by 48.8% – and by 225% since its Q3 2020 pandemic low. Average annual prices rose 1.5% across the forty-six markets covered by the Knight Frank Index in the period and this is well down on the 10.2% hike seen in Q4 2021. Knight Frank noted that “Global housing markets are still under pressure from the shift to higher interest rates – but the latest results from the Knight Frank Prime Global Cities Index confirm that prices are being supported by strong underlying demand, weak supply following disruption to new-build projects during the pandemic, and an ongoing return of workers to cities.” Tokyo and Manila took second and third place on the index at 26.2% growth and 19.9% respectively.
There are reports that the Chinese are back in the Dubai property market in numbers, after the country reopened its borders following the pandemic, and relaxed travelling restrictions, along with the fact that its domestic property market is in disarray, with investors looking for safer places to invest in property. In contrast, Dubai offers a property market that is booming because of strong demand, driven by robust economic growth and an influx of expats – including cryptocurrency executives and wealthy Russian buyers – enticed to the emirate by progressive government initiatives, minimal tax, great infrastructure and a safe place in which to live. Dubai’s residential property prices rose 17% in Q2, as the Chinese began their return to Dubai and could well return to its pre-pandemic position as the top source market. It is estimated that Chinese investments into projects by Emaar Properties roughly doubled to comprise 7% of total sales in H1. Whether 2024 will be the year of Chinese investment remains to be seen.
According to the Global Wealth Report, the total 2022 household wealth in the UAE stood at an estimated US 1.2 trillion, equating to each adult in the country having US$ 152.6k; wealth per adult was 11.7% higher at current exchange rates, but by only 4.1% using smoothed rates. There was little change, on the year, in the 7.8% ratio of household debt to gross assets. The report commented that the UAE hosts a disproportionate number of wealthy expatriate entrepreneurs, some of whom relocated after the GFC, and this trend had accentuated over the past year due to global uncertainties following the Russian invasion of Ukraine. According to estimates, around 4.5k HNWIs will make the UAE, mainly Dubai, their home this year. Globally, total net private wealth fell by 2.4%, (US$ 11.3 trillion), to US$ 454.4 trillion, with wealth per adult dipping US$ 3.2k (3.6%), to US$ 84.7k per adult. The largest wealth increases were recorded for Russia, Mexico, India and Brazil, and in terms of wealth per adult. Switzerland continues to top the list followed by the USA, Hong Kong, Saudi Arabia, Australia and Denmark. Ranking markets by median wealth puts Belgium in the lead followed by Australia, Hong Kong, Saudi Arabia, New Zealand and Denmark.
H1 saw Dubai International traffic finally return to pre-Covid 2019 levels, with 41.6 million passengers. Q2 numbers – at 20.3 million – were 42.7% higher than a year earlier, with May being the busiest month during the quarter, with 6.9 million. The world’s busiest international airport also performed well with its baggage handling, with 92% of all baggage, comprising some 37.2 million pieces, (7.0% higher than 2019 pre-pandemic figures), being delivered within forty-five minutes to arriving passengers. The top eight destination countries were India (with 6.0 million passengers), followed by Saudi Arabia (3.1 million), UK (2.8 million), Pakistan (2.0 million), US (1.8 million), Russia (1.3 million) and Germany (1.2 million). The list of top city destinations was led by London with 1.7 million, Mumbai (1.2 million) and Riyadh (1.2 million). The airport dealt with almost 219k flights – 30.2% higher on the year and 13.0% compared to pre-pandemic figures. In H1, the average number of passengers per flight, during the half year, reached 214, while the load factor was 77% and the number of airlines landing at DXB ninety-one. H1 and Q2 cargo reached 853.5k tonnes and 453.5k tonnes – down 6.2% and up by 16.1% respectively.
From June to August, Emirates operated nearly 50k flights to and from one hundred and forty cities, carrying over fourteen million passengers, with a load capacity, in excess of 80%; the airline noted that this summer has been one of their busiest ever. Adnan Kazim, Emirates’ Chief Commercial Officer, commented that “travel demand across our network has been strong and resilient despite rising cost-of-living pressures in many markets”. Top inbound markets to Dubai on Emirates included the UK, India, Germany, Pakistan, Saudi Arabia, China, Egypt and Kuwait. Over 35% of visitors to Dubai travelling on Emirates were families, staying an average of over two weeks. The carrier is confident that the winter season will witness another spike in demand for travel to Dubai, with the emirate having already welcomed more than 8.5 million international visitors in H1 – one million more than the same period in 2022.
As part of its 2023 T-Sukuks issuance programme, the Ministry of Finance announced that the third auction attracted US$ 1.63 billion, (AED six billion) – 5.5 times oversubscribed. As was the case with the first two sales, the auction was split between two-year and five-year tranches – and because of strong demand, the prices were a spread of zero to two basis points over US Treasuries with similar maturities.
The four nation BRICS bloc is to be expanded with the UAE and five other countries – Argentina Ethiopia, Egypt, Iran and Saudi Arabia – being invited to join the initial four members, Brazil, Russia, India and China. The new members will be formally admitted on 01 January. The bloc already accounts for about 43% of the world’s population, about 15% of international trade transactions, and 30% of global GDP. With many people believing that the financial world is already moving east, this move can only speed up the process. The addition of the two Gulf countries could have a double whammy – the presence of two energy producing countries in the bloc will increase the size and the economic clout of the group, whilst both countries will allow these GCC nations to diversify strategic alliances and also help set a global policy agenda. Dilma Rousseff, who heads the bloc’s New Development Bank, is keen to wean BRICS members off the dollar, and is to begin lending in both the South African and Brazilian currencies. It is about time that such a powerful bloc should start flexing its muscles and BRICS could be the perfect vehicle to challenge the greenback’s dominance and to offer the rest of the world a viable alternative.
On 02 May, Dubai’s Virtual Assets Regulatory Authority fined the five-month-old Open Technology Markets US$ 2.7 million for breaching rules relating to marketing, advertising and promotions. The digital assets exchange, which is linked to the founders of cryptocurrency hedge fund Three Arrows Capital, had yet to pay the penalty, at the beginning of this week. Vara also issued US$ 54k fines on all Opnx founders, Kyle Davies and Su Zhu and Mark Lamb; Three Arrows Capital went bankrupt last year. With reference to the non-payment, the authority noted “Vara shall determine consequential actions warranted against Opnx, which may include further fines, penalties, and/or taking any actions necessary to recover payment and definitively remedy the behaviour including, but not limited to, referring the matter to any law enforcement agency (ies) or competent courts.”
Fifty establishments have been suspended, for three months, by the Ministry of Economy, for failing to register in the anti-money laundering system (goAML) of the Financial Intelligence Unit. The system helps the FIU examine questionable transactions and to analyse potential money laundering and terrorist financing schemes, with the aim to stop financial crimes that might interfere with the UAE’s efforts to adhere to the Financial Action Task Force regulations. If they have failed to rectify their status within three months, they will face more severe sanctions. The ministry stated that both the mainland and free zones’ designated non-financial business and professions (DNFBPs) are under its supervision.
Dubai World Trade Centre Authority Free Zone saw H1 licence renewals surge by over 251% to 892 renewals. Over the period, it welcomed 322 new companies to its growing international community by 32% to over 2k companies. The free zone operation, which extends across more than two million sq ft of premium office space, recruited 262 new employees. Drawing on its role as a growth enabler, the Free Zone introduced the “Intelak Incubators” initiative in H1, offering tailored accelerator and incubation programmes, to foster start-ups and early-stage ventures within a dynamic ecosystem that supports their objectives and serves as a launchpad.
The Dubai Integrated Economic Zones Authority posted a 5% rise in Hi revenue and a 34% hike in overall EBITDA. Over the period, it achieved a 10% growth in revenue from leasing operations, a 36% growth in revenue from government services and a 39% growth in licensing revenues. Its three economic zones – Dubai Airport Free Zone, Dubai Silicon Oasis and Dubai CommerCity, – posted a 17% year-on-year growth in revenue and 20% growth in EBITDA. Sheikh Ahmed bin Saeed Al Maktoum, Chairman of DIEZ, noted: its “strong financial results further contribute to raising Dubai’s status as a city at the forefront of global trade and supply chain recovery and a leading international economic and logistical hub. We continue to steadily forge ahead in our mission to turn Dubai into a model of global excellence in economic zones.”
Moody’s Investors Service reported that the profits of the country’s four largest banks – First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank – were 68.2% higher, at US$ 7.4 billion, driven by soaring interest rates and the booming local economy. The combined net interest income of the lenders, which accounted for 77% of total banking assets in the UAE as of March 2023, jumped 37% annually. The ratings company noted that combined operating expenses of the top four UAE lenders increased 19% on an annual basis in H1, (attributable to “higher staff costs and technology investments”), but that was offset to a 38% jump in operating income, with banks reporting an improved cost-to-income ratio of about 27%.
By the end of June 2023, the Central Bank of the UAE’s public budget reached an all-time high of US$ 177.1 billion – 0.2% higher on the month – and on an annual basis, its public budget surged by 32.15%, equivalent to US$ 43.1 billion; YTD, there was a 17.5% rise from its 01 January start of US$ 150.5 billion. The split on the assets side was dominated by cash/bank balances for June, investments held until maturity and deposits – with totals of US$ 70.1 billion, US$ 57.6 billion and US$ 36.9 billion. Other assets and loans/advances made up the balance with totals of US$ 11.3 billion and US$ 1.1 billion. On the liabilities/capital side, current/deposit accounts, cash permits/Islamic deposit certificates and cash securities/coins accounted for US$ 77.6 billion, US$ 56.1 billion and US$ 37.2 billion; the remaining balances were for capital/reserves receiving US$ 3.5billion, and other liabilities accounting for US$ 2.6 billion.
Data from the CBUAE notes that Savings Deposits held by UAE banks, excluding interbank deposits, totalled US$ 73.19 billion by the end of June 2023 – 5.8% higher on the month. A split sees that UAE dirhams account for 81.6% of the Savings Deposits, at US$ 59.72 billion, with the 18.4% balance – US$ 13.47 billion – being foreign currency. In the past four years, to December 2022, Savings Deposits have risen 61.7% to US$ 66.98 billion.
Like many other establishments, Majid Al Futtaim is riding on the coattails of a booming Dubai; it posted impressively high H1 returns – with net profit rising 74% to US$ 463 million, with revenue 5% higher at US$ 5.15 billion; EBITDA was 13% higher at US$ 572 million. The family-owned conglomerate owns and operates twenty-eight shopping malls, thirteen hotels and four mixed-use communities, along with a range of business interests including in the retail, leisure and property development sectors.
Although the retail business posted a 2% dip in revenue to US$ 3.84 billion, with EBITDA dipping 7%, “driven primarily by the impact of currency devaluations across the group’s footprint”, shopping mall footfall increased by 12%, with the Mall of the Emirates recording its highest ever first-half footfall. Thanks to the UAE-based malls, tenant sales grew by 7%, with five new stores in the region opening. Its digital retail business remained strong, with a 13% increase in revenue, to US$ 327 million. Its entertainment business saw H1 revenue up 4% to US$ 224 million and, during the period, MAF opened Snow Abu Dhabi, its fourth snow destination in the region. There was a 31% hike in revenue for its lifestyle business, to US$ 129 million, as eleven new stores were opened. With major contributions from UAE-based shopping malls, and the Tilal Al Ghaf residential property development, revenue came in 39% higher at US$ 926 million, with EBITDA 22% up – to US$ 463 million.
Overall, the company noted that profitability was driven by “multiple factors” including reallocation of capital to more profitable and higher margin segments of the business. Its net borrowings topped US$ 4.09 billion, with most of the debt maturing from 2026 onwards. In the period, it raised US$ 500 million through a green Sukuk, the money from which being used to refinance an older US$ 800 million bond commitment.
UAE Banks Federation posted that six major UAE banks – First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Emirates NBD, Dubai Islamic Bank, Mashreq Bank, and Abu Dhabi Islamic Bank – had collectively dedicated more than US$ 51.8 billion in green financing for various projects in renewable energy, waste-to-energy, and green technology by the end of 2022. UBF, the sole representative body comprising fifty-nine members of the country’s banks and organisations, noted the sector’s success in developing sustainable banking solutions in line with the country’s strategy to reduce emissions and achieve climate neutrality by 2050 and with UN Sustainable Development Goals.
The DFM opened on Monday, 21 August 2023, 32 points (0.5%) lower the previous fortnight, gained 48 points (1.2%) to close the week on 4,099, by 25 August 2023. Emaar Properties, US$ 0.08 lower the previous fortnight, gained US$ 0.03 to close on US$ 1.88 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.71, US$ 4.60, US$ 1.54, and US$ 0.44 and closed on US$ 0.70, US$ 4.70, US$ 1.55 and US$ 0.44. On 25 August, trading was at 122 million shares, with a value of US$ 102 million, compared to 180 million shares, with a value of US$ 90 million, on 18 August 2023.
By Friday, 25 August 2023, Brent, US$ 0.38 lower (0.4%) the previous week, shed US$ 0.12 (0.1%) to close on US$ 84.72. Gold, US$ 60 (2.6%) lower the previous fortnight, gained US$ 24 (1.2%) to US$ 1,942 on 25 August 2023.
Nigerian Diezani Alison-Madueke has been charged with alleged bribery offences, during the time she was the country’s oil minister in Goodluck Jonathan’s administration between 2020-2015. The National Crime Agency said she had accepted bribes “in exchange for awarding multi-million-pound oil and gas contracts”. In 2015, she became the first female president of OPEC. Currently living in St John’s Wood, NW London, she has denied all charges and will appear at Westminster’s magistrate’s court in October.
There is a chance that a possible strike in Australia may lead to European wholesale prices rising. It seems that if a deal is not reached by next week, and workers at Woodside Energy Group’s North West Shelf facility, a key global supplier, stop working, then there will be disruptions in shipments of LNG from Australia. There is the possibility that two other Australian facilities, owned by Chevron, will vote for strike action; the three plants make up about 10% of the world’s supply of LNG, and although their prime market is Asia, the knock on-effect will be global, as Asian companies scour the world for ‘lost Australian’ supplies.
Another problem for embattled Boeing, with the US platemaker posting that a production glitch, found recently in some of its 737 Max jets, (737-8, 737-8-200 and 737-7 models), is not a safety risk but will lead to delivery delays. The latest problem was found when its biggest supplier, Spirit Aerosystems, drilled “elongated” fastener holes in the aft pressure bulkhead in a way that did not confirm to specifications. The supplier, which makes about 70% of the narrow-bodied jets, has made changes to its manufacturing process to address this issue. Boeing, which has ramped up production to thirty-eight a month, expects to deliver up to four hundred and fifty planes this year.
When Monarch Airlines ceased trading in October 2017, it was the UK’s fifth biggest airline and the country’s largest ever to collapse, leading to the Civil Aviation Authority having to help 110k UK holidaymakers return home, and resulting in 1.8k workers being retrenched. Two years later, its engineering arm, Monarch Aircraft Engineering Limited, went into administration. This week, it was confirmed that it is preparing to relaunch, with a spokesman commenting that “on the 18th of August, we completed the critical first step in our mission to relaunch a much-loved name in UK travel when Monarch Airlines and Monarch Holidays were passed into new ownership”. The company, which operated out of London Luton Airport, confirmed its new headquarters would be in the Bedfordshire town.
Zoom surprised the market by posting a Q2 profit of US$ 182 million – nearly quadruple the US$ 46 million figure from a year earlier – whilst raising its outlook for the year on stronger demand from its enterprise customers. For the ninth straight quarter, revenue topped the US$ 1 billion mark, posting a 3.6% hike to US$ 1.14 billion, driven by acquiring new customers, (up 7% to 218k enterprise customers), and expanding across existing customers. Its cash flow increased 31%, year on year, to US$ 336 million, while the operating income surged 46% to US$ 178 million, in the quarter, as its free cash flow came in 26.2% higher to US$ 289 million. By the end of July, total cash, cash equivalents and marketable securities stood at US$ 6 billion as at 31 July.
With Q2 revenue topping US$ 13.5 billion, technology giant Nvidia expects Q3 revenue to be 18.5% higher on the quarter and 170% on the year, at US$ 16.0 billion, as sales soared, with demand for its AI chips more than doubling. It is estimated that its hardware underpins most AI applications, with one analyst posting that it had cornered 95% of the market for machine learning. Nvidia’s best performing unit was its data centre business, which includes AI chips, where revenue, at US$ 10.3 billion, was 170% higher on the year, as cloud computing service providers and large consumer internet companies snapped up its next-generation processors. In Q3, the company plans to buy back US$ 25 billion of its stock. Earlier in the year, when its stock value had more than tripled to top US$ 1.0 trillion, it became the fifth publicly traded US company to join the so-called “Trillion-dollar club”, along with Apple, Microsoft, Alphabet and Amazon.
After internal moves – including the launch of its certified pre-owned service and the expansion of watch production facilities a series of strategic manoeuvres – Rolex is set to broaden its retail reach by expanding and acquiring Bucherer, proprietor of the Tourneau chain in the US. It has been a retail partner of the iconic watch maker for more than ninety years, with fifty-three of its one hundred establishments being authorised Rolex dealers; thirty-four of them are located in the US and forty-eight of the total outlets also carry Tudor watches, a brand owned by Rolex. Latest figures of the privately-owned Swiss company show that in 2021, it manufactured 1.05 million watches, selling for a total of US$ 8.8 billion. Both parties will continue to retain their distinct identities and continue to function as independent enterprises.
Wilko’s administrators reported that “while discussions continue with those interested in buying parts of the business, it’s clear that the nature of this interest is not focused on the whole group”. Because PwC could not find a buyer for the whole business, it confirmed that jobs are set to go and stores will close, but that parts of the Group could still be sold. Only three weeks ago, Wilko announced that it was going into administration, putting 12.5k jobs and its four hundred stores at risk.
Founded in 1965, by 17-year-old Fred DeLuca and family friend Peter Buck, Subway is to be acquired by Roark Capita, a private equity firm, which already has brands such as Baskin-Robbins, Arby’s, Buffalo Wild Wings, Inspire Brands and Dunkin’. No official figure has been bandied around, but reports indicate that the family-owned sandwich chain could be in excess of US$ 9.0 billion. Although it has expanded rapidly in recent years, it has faced soaring costs and increased competition. Initially known as Pete’s Super Submarines, it went through several name changes before finally being renamed Subway in 1972, and within two years it had grown to run sixteen sandwich shops – now it has 37k franchised outlets in more than one hundred countries. H1 global sales were 9.8% higher on the year.
The US Department of Justice has charged the two founders of Russian cryptocurrency firm Tornado Cash, with laundering more than US$ 1 billion in illicit funds. It is alleged that Roman Storm and Roman Semenov engaged in money laundering activities, violating sanctions and operating an unlicensed money-transmitting business. This was carried out through involvement with Tornado Cash, with hundreds of millions of dollars, being directed to the Lazarus Group, a North Korean hacking group sanctioned by the international community. On Wednesday, Storm was apprehended in Washington state, whilst Semenov, a Russian citizen, is still at large. The third co-founder, Alexey Pertsev, is not implicated in this case but he is facing a separate trail in Amsterdam.
As hyperflation continues to wreak havoc on Lebanon’s economy, it is reported that inflation topped an annual 252% last month, for the thirty-seventh consecutive month; the CPI increased by 7% on the month. This has had the obvious impact on the currency which at the beginning of the week stood at LBP 1 = .000067. The situation is further exacerbated because of the ongoing political impasse over the election of a president. The country’s currency continued to lose value on the parallel and official markets since it was devalued by 90% at the start of February. Then, the official exchange rate changed to 15k pounds to the US dollar, compared with the peg in place since 1997 of 1,507.50 to the dollar. The increase in the cost of living was led by the soaring cost of housing/water/electricity/gas/other fuels, with a 28% weighting coming in 234% higher, food prices, with a 20% weighting, up 279%, health costs with an 8% weighting, rising 257% and transport, with a 13% weighting, 222% higher. Over the past four years, the country has been in an economic crisis, described by the World Bank as one of the worst in modern history, and it still has to enforce critical structural and financial reforms required to unlock US$ 3 billion of IMF assistance which could also pave the way for billions more in aid from other international donors. In June, the IMF warned that a further delay of reforms would keep confidence low, while cash dollarisation of the economy would increase, causing the national currency to depreciate further and keeping inflation high.
On Thursday, the Turkish central bank raised its key policy rate by 7.5% to 25.0% in a bid to stop the rising inflation, now at 47.8%, by further tightening monetary policy – a move that surprised the market by the size of the increase. The data had showed that inflation was pushing higher, with the central bank noting that “the committee has decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, anchor inflation expectations and control the deterioration in pricing behaviour,” and that it anticipated that “disinflation will be established in 2024”. Hafize Gaye Erkan, the new central bank governor appointed in June, noted that the central bank projects inflation will end this year at 58%, up from her predecessor’s forecast of 22.3%.
This year, the weather has played havoc with the Indian agricultural sector, resulting in the Modi government introducing a combination of export bans and extra tax. With onion prices in the Indian Ministry of Finance skyrocketing, the government has placed an immediate 40% export duty in a bid to improve domestic availability of the vegetable. The country, the world’s biggest exporter of the vegetable, is hoping to achieve the double whammy of receiving more export revenue, as overseas consumers, (mainly Asian countries such as Bangladesh, Nepal, Malaysia and Sri Lanka, as well as the UAE), will have to pay more for the product and may dampen local prices for the domestic market. Because of adverse weather conditions, average wholesale onion prices have risen 20% over the last month, to US$ 28.87 per 100 kg; in H1, onion exports jumped 63%, on the year, to 1.46 million metric tonnes. It is expected that this move will see China and Pakistan raising prices, as they have a limited surplus for exports.
The latest is sugar with the market widely expecting a ban on mills exporting sugar from the beginning of the next season in October. The lack of rain has cut cane yields and if it were to happen, international benchmark prices, already at multi-year highs, will inevitably head north – and will obviously have a negative bearing on global food markets. Last season, the government allowed mills to export only 6.1 million tonnes of sugar during the current season to 30 September, after letting them sell a record 11.1 million tonnes last season. Last month, India imposed a ban on non-basmati white rice exports.
On Monday, the People’s Bank of China announced another interest rate reduction, in a forlorn bid to reignite its faltering economy. Following a June reduction, it lowered the one-year loan prime rate, maintaining the rate at a historic low. With the central bank also not touching the five-year LPR, which influences mortgage rates, and the fact that the reductions were smaller than market expectations, this latest move failed to sway the market; its concerns mount, with international investor confidence sinking, because of a series of disappointing economic data. It seems to be the time for the administration to initiate more concrete measures to stimulate economic growth.
The Bank of England has issued a warning that, in this era of soaring interest rates, UK companies face a higher risk of corporate defaults, and that corporate debt stress would hit its highest level since the 2008 GFC. Even for those companies that do not fail, it is inevitable that to cut costs, capex will be lower and payroll numbers may be cut; either way, there will be a negative impact on the economy. The BoE reckon that the share of non-financial companies, undergoing debt-servicing stress, will be 5% higher, on the year, to 50%; this would rise to 70% for medium-sized companies, with a turnover of US$ 12.6 million – US$ 252.0 million, (GBP 10 million to GBP 200 million). Insolvency Service posted that there were 6.4k registered company insolvencies in Q2 – the highest figure since Q2 2009.
UK July house prices continued to head southwards – by 1.9%, (the biggest monthly fall since August 2018) – mainly attributable to rising mortgage rates. Despite two-year mortgage rates recently dropping from July’s fifteen-year highs, mortgage lenders Nationwide and Halifax reported falls in selling prices last month. Rightmove reported that the number of home sales was down 15%, compared with 2019, before the pandemic, whilst sales of homes typically sought by first-time buyers fell by a lower 10%, reflecting a 12% increase in rents for properties in that category over the past year. Overall, homes on the market were 10% lower than in August 2019. Average asking prices for homes were 2% below their May peak, but still remained 19% higher than in August 2019. Interestingly, last year the price of a typical residence in Surrey Heath, outside London, equated to 11.8 times average earnings – a year later it is 9.6 times; according to Halifax, the UK average is 6.7 times earnings.
According to Zoopla, and following the rise in mortgage rates, it is now cheaper to rent a UK home than to buy one for the first time since 2010. It calculated that average UK rent is US$ 1.48k per month, while average mortgage repayments are US$ 1.63k for first-time buyers on a 15% deposit. The worst location where the gap is greater is the South East but it is still cheaper to buy in areas like northern England and Scotland. In 2021, rates for both two- and five-year fixed mortgages were below 3% but now they stand at 6.76% and 6.24% – both having more than doubled in just over two years. Although rents have been increasing, it is still cheaper to rent than to buy, and that may continue to be the case for the foreseeable future, as rates are set to remain high, with the days of near zero rates gone for a long time to come. However, the caveat is that rents may rise at an increased rate in the future. The way things are looking, there will be many in the future living Life For Rent!
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