Little Arrows

Posted on November 21, 2013 by howesdubai

japan-bullet-trainAfter a relatively quiet month by their standards, Emaar Properties are once again in the news – this time launching the Rosa collection of 144 villas in Arabian Ranches. No doubt there will be much activity on Saturday – in Dubai, Abu Dhabi and Mumbai – as the villas go on sale.

Commercial property had been the weak link in Dubai’s realty sector, dragged down by an over-supply of inventory. But latest indicators point to the fact that, in Q3, UAE and Japan were the best performing global markets, with more of the same expected, as there has been a noticeable drop in the sale of distressed assets. However, the market is still some way off its 2008 price position but is recovering well from its later trough which saw values some 60% down from their peak. The Knight Frank Prime Global Cities Index estimated that Q3 prices were easing but still up 3.4% compared to the 6.1% in Q2 and 22.0% over the past twelve months.

Also slowing down is the hospitality sector with October occupancy rates at 78.6%, down 0.7% mainly because  the 7% demand growth was more than offset by a 7.4% supply expansion. However, both the average daily rate (ADR) and revenue per available room were up by 7.4% to US$ 299 and 6.6% to US$ 245 respectively. Hotel visitors for the first nine months of the year were up 9.9% at 7.9 million with total revenue of almost US$ 4.2 billion. Some hotels may have to consider not killing the golden goose by reducing their comparatively high room rates

As the Q3 reporting season draws to an end, Dubai Islamic Bank – the main sharia-compliant financial institution in the emirate – came out with impressive numbers. A 52.0% hike in net profit to US$ 126 million helped the YTD return rise by 33.5% to US$ 327 million. All other indicators headed north including deposits up 19.3% to US$ 21.7 billion, loans and advances by 1.4% to US$ 16.3 billion and total assets up 9.0% to US$ 29.3 billion.

Sensational figures were announced by Arabtec Holdings which saw its Q3 profit surge 212% to US$ 44 million on the back of a 39% rise in revenue at US$ 518 million. The company’s YTD revenue is up 27% to US$ 1.39 billion and profits by 153% to US$ 100 million. Largely as a result of these figures, the Board has decided not to go ahead with phase 2 of a US$ 653 million rights issue.

Less spectacular were the results from Shuaa Capital which turned a Q3 2012 loss of US$ 3.8 million into a US$ 1 million profit this period on a 57.0% increase in revenue to US$ 14.9 million. Its total assets stood at US$ 409 million.

Dubai’s jewel in the crown, Emirates Group saw H1 revenue up 12.8% to US$ 11.5 billion resulting in a 4% hike in profit to US$ 599 million. The main cost drivers were the fuel charges, accounting for 39% of operating expenses, and exchange variances because of the relatively high US$. It still has cash reserves of almost US$ 5 billion and the airline has seen the number of employees jump 11.7% to its current level of 75,800. Having already brought ten aircraft into service in H1 and a further fifteen expected in H2, it will be interesting to see what acquisitions the airline makes at next week’s Dubai Air Show. There is no doubt that there are benefits from economies of scale but there may be a time when it starts working against the airline – in other words, can any airline get too big?

A joint venture, between Danzas AEI Emirates, the Al Tayer Group and DHL Global Forwarding, has started work on two new airfreight and chemical logistics facilities. Located at the DWC Logistics District, the US$ 40 million facility, covering 37k sq mt, will be ready by the end of 2014.

Despite reports earlier in the year, it now seems that Majid Al Futtaim Holding (MAF) is only interested in the two Spinneys branches in Jordan – and not now in buying all the Spinneys outlets outside of the UAE, i.e. in Egypt, Lebanon and Qatar.

Christmas has come early for two Australians, Matthew Joyce and Marcus Lee. The Court of Appeal has quashed their convictions and acquitted them in a corruption case in which the former had been sentenced to ten years and a US$ 25 million fine.

Although there were some slight falls in September, the UAE Central Bank latest statistics indicate that YTD money supply has risen. Monetary aggregate M2 (currency, current accounts call accounts and deposits) rose by 10.7%, with bank loans and advances increasing by 7.2% and total bank deposits by 8.8%.

The Dubai Financial Market General Index lost 73 points this week to close 2.5% down at 2825.

Dubai’s annual inflation rate continues to rise – at 3.2%, its highest level in four years. According to the Dubai Statistics Centre, 44% of consumer costs is taken up by housing and utility expenses which have increased by 3.2% year on year. But with recent spiralling rent rises and school fees, the CPI may see a bigger jump next year.

Indian inflation in October hit 10.1% with some food prices going through the roof. On the other hand, inflation in the UK fell to 2.2% and is expected to drop to the 2% level in 2014 despite the recent double digit energy price hikes.

The UK economy has recovered we’ll and appears to have some traction, with 2013 GDP growth expected to be 1.6% and rising to 2.8% next year. Unemployment has dropped again with 7.6% of the workforce looking for a job.

This is in direct contrast to the eurozone which managed to register growth of just 0.1% in Q3. Nine countries in the 17 nation bloc have unemployment levels of over 10%, including Spain and Greece with 1 in 4 of their population unemployed. Even the three largest economies are feeling the pinch with Germany recording a falling 0.4% growth and France and Italy each with a marginal 0.1%.

In Japan, the situation is not much better with Q3 growth falling to 0.5%, despite the best efforts of PM, Shinzo Abe. His brand of economics, known as Abenomics, relies on the so-called “three arrows” – being monetary policy to end twenty years of deflation, reform to boost outside investment and to bolster government spending on infrastructure. To overcome his economic woes and get the country back on track, the Japanese leader will need a bigger armoury than his Little Arrows.

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You Ain’t Seen Nothin Yet!

Posted on November 10, 2013 by howesdubai

dubai-airshowThere is no doubt that the Arab Spring has given a welcome boost to the Dubai tourism industry, on the whole. However, one sector that is suffering is the cruise market which will probably see a 27% fall in numbers this year to around 300k because of regional problems.

Turkish company, Gunal, has been awarded a US$ 136 million contract to build phase 1 of the road and bridge network for the 3 km long Dubai Water Canal project. The project – spread over three phases – will cover more than 80k sq mt with marinas, retail outlets and an estimated 450 restaurants. It is expected to be finished by 2017 and to attract 22 million visitors a year.

It comes as no surprise to see that Dubai has finally made the Q3 ‘hot list’ of global properties according to IP Global’ s Property Barometer.  This must be treated with a little caution as yet this is another survey that estimates prices are still 30% lower than at their 2008 zenith and that YTD prices have risen by 11.9%. It is apparent that there is a wide divergence of views from the various recent property surveys.

Emaar has dismissed reports that it has plans to build another tower taller than Saudi’s Kingdom Tower, which, when completed in 2017. will surpass the Burj Khalifa as the biggest structure in the world.  Data from Emporis shows that Dubai is home to over 900 high rise buildings, of which nearly 50% are over 40 storeys.

As the Institute of International Finance has upped its growth forecast for the country to 4.7%, it also issued a caveat that the UAE has to be aware of a potential renewed cycle of risk taking as a result of a robust real estate recovery and a massive jump in the local equity market prices. Some analysts are experiencing déjà vu and see a repeat of 2008 on the horizon.

Dubai authorities are apparently aware of the possibility of another asset bubble and are taking active steps to deter a reoccurrence. It seems that the rapid upward price movements seen recently are beginning to dampen market expectations. Nevertheless realty transactions so far this year are up 34.5% to US$ US$ 53.1 billion, with the construction and real estate market now contributing to over 24% of Dubai’s GDP. It is not difficult to see that any major downward correction would bring problems to the economy.

Dubai Holding Commercial Operations Group, personally owned by the Ruler, saw its Moody’s credit rating improve one notch from B2 to B1. There is market confidence that the company will be able to meet its future debt repayments, including a US$ 1 billion bond in January 2014.

Last month, Dubai Holding announced it was planning to sell its 35% share in Tunisie Telecom, which it had bought for US$ 2.25 billion in 2006. This week, Abraaj Group is also exiting from the Tunisian market as it sells its 2009 acquisition, pharmaceutical company Opalia Pharmato, to Recordati.

Two months after signing a JV with Samsung Engineering, Arabtec has signed a similar agreement with another S Korean company, GS Engineering & Construction. The new entity will concentrate on large infrastructure and construction projects in the MENA region. This week Arabtec won a US$ 490 million contract to build a 77-storey, 369m tall tower block in Downtown Dubai.

Dubai-based Habtoor Leighton Group has been awarded a US$ 163 million Abu Dhabi airport contract for construction and infrastructure works. This is scheduled for completion by 2015.

Impressive figures emanating from Drake & Scull’s September results show both revenue at US$ 970 million and net profit of US$ 40 million with healthy gains of 68% and 76% respectively. Awarded projects so far in the first nine months were up at US$ 1.83 billion and its backlog has jumped 65% to US$ 3.38 billion.

Damac intends to raise US$ 800 million by offering Global Depository Receipts on the London Stock Exchange with 1 GDR equivalent to 3 Damac shares. Formed in 2002, the company has delivered nearly 8.9k properties (to the value of US$ 3.1 billion), with a further 21.2k units under construction. Last year, profits were almost US$ 340 million on turnover of US$ 1.1 billion; sales for the first six months of 2013 are already over the US$ 1 billion mark.

Dnata has now expanded its UK base to cover the five major airports, with new facilities at Gatwick, Glasgow and Birmingham, to add to existing operations at Heathrow and Manchester. Total investment in the country is in excess of US$ 160 million.

It seems that the April 2013 Emirates tie-up with Qantas is beginning to pay dividends with Australasian September passenger traffic and ticket sales up 41.7%  and 38.6% respectively, compared to the previous year.

Latest IATA figures for September indicate a global increase in passenger numbers with total revenue passenger kilometres up 5.5%, and capacity by 5.3%. Although international passenger demand expanded by 5.7%, increased capacity resulted in load factors remaining fairly static at 80.3%. As usual, the Middle East saw a bigger 10.4% jump in traffic growth but because of a 13% increase in capacity, its load factor dropped from 79.1% to 77.2%.

With over 60k trade visitors expected, the Dubai Airshow 2013 takes place this month at its new location, Dubai World Central; it will be the biggest to date with a 32% increase in outside capacity from its old venue, Airport Expo, Dubai International. Of the one thousand exhibitors 266 companies will be from the UAE and 197 from the US, with the likes of Canada and China increasing their presence to 32 and 25. Local carriers, Emirates and flydubai, are expected to place mega orders – definitely with Boeing and probably with Airbus.

Ahead of the event, flydubai has just signed a $228 million ten-year finance lease for six new Boeing 737-800 aircraft with quarterly loan repayments over the tenure of the lease.

In 2012, Dubai Duty Free recorded record annual sales and this year, the company expects to see a further 11% growth with figures of over US$ 1.8 billion expected. YTD sales at the end of October have already topped US$ 1.5 billion. Their best selling products are perfumes (accounting for 15.3% of the total value sold), gold (9.2%), confectionary (7.7%), watches (6.5%) and cosmetics (6.4%).

Dubai retail firm, Apparel Group, formed in 1996, has signed up with Line Investment & Property to open a further forty outlets to add to its current portfolio of 750 stores in 14 countries. The company represents more than fifty brands in the region including Tommy Hilfiger, Tim Horton’s and Nine West.

With China producing more than 40% of the global calcined petroleum coke, it makes sense to see that Dubai Aluminium owns 20% of a Chinese calciner which has just been commissioned. The JV – with Hong Kong’s Sinoway Holdings – will have an annual production of 560k tonnes.

A new aluminium downstream plant has opened in Jebel Ali. Royal Engineering Fabrication Company – owned by the Al Ghurair Group – is to source locally from the regional aluminium producers, including Dubal, and supply the automotive, aerospace and architectural sectors. Refco is expected to produce 1.9 million parts for the premium vehicle makers next year.

Another boost for the local economy came with news from Ford that Dubai will become the HQ for its fifth global business unit, covering the MENA region. The US car manufacturer has seen a 60% increase in sales of its Ford and Lincoln models over the past four years.

Dubai Investments PJSC witnessed a massive 97.8% rise in Q3 profit to US$ 43.9 million and an even more impressive YTD 107.1% return at US$ 144.7 million. The conglomerate, which owns around forty subsidiaries and JVs in a catalogue of sectors, has assets in excess of US$ 3.4 billion and a net value of US$ 2.4 billion.

The Dubai Financial Market announced its own results with a Q3 profit of US$ 22.6 million (compared to a loss of US$ 463k over the same period last year) and a YTD surplus of US$ 48.9 million. The main drivers for this improvement have been capital appreciation and higher volumes.

The Index itself was marginally down on Thursday at 2898 points, having started the shortened week on Monday at 2922.

The Islamic Development Bank, which provides financing for fifty-six member countries, has announced a future US$ 10 billion sukuk listing on Nasdaq Dubai. This will be a big step forward in the expansion of the local bourse as well as in Dubai’s aim to become the capital of Islamic Economy. Following HH Sheikh Mohammed’s initiative, the emirate’s capital markets have attracted US$ 12.5 billion with a further US$ 3.8 billion expected before the end of the year.

It now seems that UAE financial institutions have five years to introduce new Central Bank regulations that will restrict the amount banks can be exposed to government-related entities’ debt. The long-awaited regulations are expected to be formalised next month.

Two years after losing its triple A status, the French credit rating has been cut again from AA+ to AA by Standard and Poor’s. The main reasons for this are the government’s intransigence in introducing labour reforms that would make the country more competitive and its high government debt to GDP which is nearing 85%. If further drastic action is not taken by the Hollande government, the country will remain in the economic doldrums.

A further sign of the economic weakness prevalent in the eurozone was the European Central Bank’s confirmation that it will cut interest rates to almost zero. This has been done in the forlorn hope that it will prevent the bloc returning to recession.

With the Expo 2020 decision less than three weeks away, there is no doubt that whatever way the announcement goes, there will be mega projects launched in the emirate. The message from Dubai to the world is You Aint Seen Nothin Yet!

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The Lonely Bull (El Solo Torro)

Posted on November 4, 2013 by howesdubai

nyse-bullFollowing their impressive Q3 financial results last week, Emaar Properties has announced a US$ 3 billion Iraqi project in Erbil, Kurdistan. Comprising 15k residences, three 5-star hotels, 715k sq mt of office space and a shopping mall, the development will cover 541k sq mt. Downtown Erbil will create 45k new jobs.

The company also announced this week the launch of its luxury Sky Collection residences in Downtown Dubai. The Address Residence Fountain Views III – with 76 storeys – is a major component of Emaar’s three-tower dedicated serviced apartment project. So far this year, the company sales have almost tripled to US$ 2.5 billion.

This week, Dubai was selected to host the 2014 World Islamic Economic Forum – over two thousand Muslim political and economic leaders are expected to be in Dubai for the conference next November. Recently HH Sheikh Mohammed declared his keenness to make Dubai the world’s Islamic economic capital but the emirate has some ground to make up to catch up with Kuala Lumpur and London.

Dubai Holding, owned by the Ruler, confirmed that it would repay a US$ 1 billion bond due for maturity in January that would then leave the Dubai Holding Commercial Operations Group with one outstanding US$ 805 million bond, due for repayment in 2017. The group, with 2012 profits of US$ 327 million, has assets such as the hospitality-based Jumeirah, TECOM, Dubai Properties Group and Emirates International Telecommunications. This week Jumeirah announced it had raised a five-year $1.4 billion unsecured syndicated loan; this would be used to fund its expansion and also, in part, for the general corporate business of DHCOG. The operator, with 22 managed hotels, also confirmed an agreement with IFG Basis Project to manage a 74-room luxury St Petersburg hotel, due to open within three years; this will be the operator’s first foray into Russia.

Sunday saw the first official commercial flight into Al Maktoum International Airport with the arrival of Hungarian-based Wizz Air. The facility has been opened for freight carriers since June 2010 but an increasing amount of international carriers is expected to use the airport, which is destined to become the world’s largest super aviation hub.

Meanwhile passenger traffic at Dubai International increased by 13.1% in September, with a total of 5.4 million passengers, whilst year to date traffic was up 16.0% to 49.4 million. Air freight volumes rose 1.9% in September, on volumes of 197k tonnes, with YTD totalling 1,786k tonnes – up 6.6%.

Also on the transport theme, Serco Group has just signed a new five-year US$ 575 million contract with Dubai’s Road and Transport Authority (RTA) to maintain and operate the Metro. The world’s largest fully automatic transit system was inaugurated in September 2009 and is expected to carry over 127 million passengers this year. There are 49 stations on the Red and Green lines, covering 75 km.

DP World announced that Q3 gross container volumes were up 2.4%, on a like-for-like basis, handling 14.2 million TEUs (20’ equivalent units). Of this total, the UAE had a record quarter with 5.4% growth to 3.6 million TEUs – and exceeding 10 million TEUs, for the first time, in the first nine months of 2013. It is interesting to note that the company has a further four million TEU capacity coming on line within the next year.

The latest company to report on Q3 earnings was Etisalat with a 20.0% jump in revenue to US$ 2.61 billion negated by a 17.2% drop in profit to US$ 499 million, as staff expenses grew. International operations, which have increased by 41.0% this year, now account for 35.4% of its total revenues; however, however, in Egypt, there was a 14.0% reduction in revenue to US$ 300 million mainly because of the weak Egyptian pound.

With a current customer base of 6.9 million mobile subscribers and 587k fixed line users, Du, the Dubai-based telco, saw its Q3 revenue up 8% to US$ 719 million, whilst net profit after royalty payment surged 45% to US$ 129 million. Its growth is limited by the fact that Etisalat has the monopoly over Abu Dhabi’s fixed-line networks and further liberalising of the country’s broadband would benefit Du’s expansion plans.

The Dubai-based schools operator, GEMS Education, is planning to raise US$500 million from a sale of hybrid Islamic bonds to finance its future plans. The company has 11k staff and operates around one hundred private schools globally of which seventy are in the region.

Work is well under way on the 14km long corniche which will stretch from the Burj Al Arab to the Dubai Marine and will be ready by the end of 2014. The new walkway and jogging track – known as the Jumeirah Corniche Development Project – will link with the Dubai Canal Project.

Latest figures from the Dubai Economic Council show that the emirate continues with its impressive growth trend – with Q2 GDP up by 4.7% – allied with a reduction in the emirate’s fiscal debt by 15.7% to US$ 409 million. Next year, there is a forecast 7.2% rise in public revenue to US$ 8.9 billion and a smaller 5.8% hike in spending to US$ 9.3 billion. The major sectors that contribute to Dubai’s GDP toal are wholesale and retail (29%), manufacturing (16%), transport (14%), real estate (13%), finance (12%) and construction (8%).

The report also highlighted that more than 5 million tourists arrived in Dubai in H1 with visitors from neighbouring Saudi Arabia up by a massive 32%. On a quarter to quarter basis, returns show occupancy rates up by 5.3% to over 80%. Rather surprisingly, there were only fourteen new hotels and two hotel / apartments opened in the year bringing the total inventory to 406 and 197 respectively. August hotel occupancy figures rose 7.8% whilst year on year RevPar has surged 25.8% to US$ 149, following an 11.7% rise in the ADR (average daily rate).

Mashreq reported a 34.0% profit jump for the nine months of 2013 to US$ 354 million, as its total operating income grew by 19.2% to US$ 954 million. During the period, deposits rose by 11.7% to US$ 14.4 billion whilst total provisions for loans and advances reached US$ 790 million, constituting 87.9 per cent coverage for non-performing loans.

Further good news for the bank came in a US court case confirming that Mashreq has a claim against ING Groep involving the loss of over US$ 60 million. The case arose when the Dubai-based bank claimed that a 2007 US$ 108 million investment went sour with ING allegedly placing more than two thirds of the investment into “toxic, illiquid structured securities”. Unfortunately, New York law precludes Mashreq from pursuing punitive damages and can only claim what it is actually owed.

HH Sheikh Mohammed bin Rashid Al Maktoum chaired the latest cabinet meeting that approved the 2014-2015 federal budget. The planned US$ 12.5 billion spending package was up 3.1% on last year, with more than half allocated for development and welfare and a further 21% and 8% for the education and health sectors respectively.

At long last, the Central Bank has issued new regulations in relation to property sales, basically restricting home loans to 75% for expatriates and 80% to locals for property valued at under US$ 1.36 million and 65% and 70% for values above that sum. Second property purchase will be further restricted to 60% for expats and 65% for nationals. The main provision to stop “flipping”, and slow down the booming market, is that all off plan mortgages will be limited to 50%. The new rules will become applicable by December.

For a change, the Dubai Financial Market General Index had a lacklustre week closing on Thursday 12 points up at 2922. Over the month, the market has risen a further 6.0% and over the first ten months of 2013 it has climbed 88.38%.

As governments around the world battle with lower tax receipts and increased expenditure demands, it is difficult to have any sympathy with the likes of Amazon, DHL and Google who seem to go out of their way to make a mockery of the system. Recent reports indicate that the Google funneled US$ 12 billion of royalty payments to Bermuda which slashed its overseas tax rate to a about 5%. The company earns most of its foreign income in Ireland (already with a low tax regime) thus paying little tax in the countries where its customers are based. Furthermore it makes use of what is called a ‘Dutch sandwich’ – a structure that routes its profits via the Netherlands to avoid withholding taxes.

With Christmas fast approaching, it seems that the price of chocolate is set to rise, as costs have surged 31% this year, mainly because of huge increases in cocoa butter (70%), milk powder (50%) and cocoa (21%).  The situation is expected to worsen in the coming months.

There will be little festive cheer in the eurozone despite the bloc exiting six quarters of recession.The recovery is weak and fragile with major problems of low productivity, high unemployment, anaemic and uneven growth and an ever expanding north / south divide still to be surmounted. The banks have to start lending and unblocking the credit lines and, if they fail to do so, the eurozone will once again sink into inevitable recession.

As the Federal Reserve decided to continue with its stimulus package for the foreseeable future, it seems odd that  US stocks are trading at historic highs, despite recent indicators, such as private-sector jobs growth, housing starts and consumer spending, being more than disappointing. The fact that the Fed has been pumping in US$ 85 billion of ‘easy’ money a month (and probably more than US$ 3 trillion since the QE process began), allied with low interest rates and a falling bond market, has resulted in the total return for October alone (including dividends) from the S&P 500 companies to be 5.5%. Now is the time to get out of this market – you do not want to be The Lonely Bull (El Solo Torro)!

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Another One Bites The Dust!

Posted on October 27, 2013 by howesdubai

dubai-expo-2020HH Sheikh Hamdan bin Mohammed Al Maktoum, Crown Prince of Dubai, opened the 33rd Gitex Technology Week on Sunday. The event provides a major boost for the local economy as it attracts more than 130k industry specialists from over 150 countries. This will prove to be another boom week for the hospitality sector, following straight after the lucrative Eid Al Adha holiday.

Prior to the event, HH Sheikh Mohammed bin Rashid Al Maktoum announced a major project to transform Dubai into a Smart City. With the expanded use of smart technology, the project will enable the public, including residents and visitors, to link directly with the various departments in the public service 24/7. Other information portals – including weather, traffic, entertainment guides etc – will become available.

Dubai Customs also released figures showing the tremendous growth in the emirate’s electronics foreign trade with an H1 growth of 30.8% to US$ 37.1 billion. Imports were up 31.6% to US$ 20.5 billion of which China (accounting for 46.7%), Vietnam (16.0%) and Malaysia (5.3%) were the largest trading partners. Exports and reexports jumped 27.1% to US$ 16.6 billion with the main business going to Saudi (21.3%), Iraq (11.4%) and Hong Kong (6.6%). Not surprisingly, mobile phones were the single-most traded item, accounting for 49.2% of total imports and 57.5% of exports and reexports.

One of the first companies to announce their Q3 results was Emaar Properties with a 36% revenue surge in the first nine months of 2013 to US$ 2.4 billion whilst net profit was 13% up at US$ 490 million. Its prime asset, Dubai Mall, had a footfall of 55 million – 24% up on the same period last year and was a major contributor to the fact that the company’s malls and hospitality sectors accounted for 44% of total revenue.

Emirates NBD has acquired from Union Properties its Uptown MotorCity development, including six hundred apartments, as well as the 243-room Motor City Hotel, due for completion by June 2014 – five years later than originally planned. 40% of the residential units have already been sold. At the beginning of the year, the bank was UP’s largest shareholder but their latest accounts show that it had booked a US$ 52 million gain from divesting 32.6% of its shares and has announced that its remaining 15% is now up for sale. ENBD reported a 21% increase in Q3 net profit to US$ 211 million although a 50.5% rise in bad loan provisions, from US$ 275 million to US$ 414 million, meant its profit was below analysts’ forecasts.

Merlin Entertainment, the world’s second largest second largest visitor attraction operator (with 54 million visitors) after Disney, is planning to build a Legoland theme park in Dubai. Five years ago, it was due to partner Tatweer to build the park in Dubailand in what was to be a US$ 248 million project but the GFC put an end to those plans. (At the time, Dubai Holding subsidiary, Dubai International Capital, had a 17% share in Merlin but sold out in 2011).

Emirates International Telecommunications LLC, part of Dubai Holding, owned by the Ruler, is expected to sell two of its assets – a 35% share in Tunisie Telecom, which was bought for US$ 2.25 billion in 2006, and a 26% share in the Dubai-based Axiom Telecoms. It is estimated that proceeds from both sales will bring in US$ 1 billion and are part of the repayment strategy that sees state-owned entities having to find in the region of US$ 50 billion, over the next three years.

A 13 megawatt photovoltaic plant, opened this week, represented phase one of Dubai’s $3.3bn Mohammed Bin Rashid Solar Park in a push to diversify energy supplies in the UAE. Built by US company, First Solar, the facility will eventually produce 24 million kw pa which should meet the power needs of five hundred households. The solar park will eventually generate 5% of Dubai’s electricity.

The country continues to power on with an expected US$ 12.8 billion 2013 expansion in its nominal GDP to US$ 389.8 billion and this should easily top the US$ 400 billion mark next year. The main driver for growth will be the non-hydrocarbon sector at 4.5%, whilst the oil sector will fall to 1.6% growth this year, giving a real GDP expansion of 3.5%.

In no time at all, Dubai bourses hold nominal value of sukuks at US$ 11.1 billion, the third largest total globally, The DFM has had six new listings already this year, totalling US$ 4.4 billion. Undoubtedly, this market is set to develop further as Dubai expands its range of Islamic finance listings, including sukuks.

Meanwhile the Dubai Financial Market General Index witnessed a quieter week (in local terms) – up 3.1% to 2910 points, having started Sunday at 2823.  The market has jumped 5.4% already this month and shows an impressive 87.6% gain in 2013.

This week, Dubai welcomed more than 250 representatives, from 167 member nations of the Bureau International des Expositions (BIE). These delegates, who oversee World Expo, are here to check on the emirate’s readiness to host Expo 2020, with Dubai being the bookies’ favourite in a four horse race. However, the jury is still out whether the awarding of Expo 2020 will be a godsend to the Dubai economy. Whichever way the decision goes on 27 November, there will undoubtedly be a raft of mega projects announced. It will be disappointing news for Dubai if the BIE plump for any of the other candidate cities – Izmir, Sao Paulo and Yekaterinburg. However, if the unthinkable were to happen, the emirate will find suitable ways to spend the estimated US$ 8.4 billion cost of financing the six-month exposition.

The UK government seems to have wasted over US$ 2 billion of taxpayers’ money by selling its stake in Royal Mail at least 37% below market value. IPO shares were issued at US$ 5.33 (valuing the company at US$ 5.3 billion); at the beginning of the week, they were trading at US$ 7.26 (US$ 7.3 billion).

Despite the odd snippet of good news rippling out of Europe, many of the countries still face the prospect of continued austerity. For example, troubled Spain will have to slash public spending by 4.7% and cut pensions so as to reduce its public deficit to GDP to 5.8% in order to satisfy the new tougher European budgets. Greece – now in its 6th straight year of recession – has to introduce further draconian measures, as its public revenue is still far short of its proposed spending.

It is no surprise to see BHP Billiton, the world’s largest mining company, cancel all but one of its Indian operations – another example of a conglomerate not happy with the Indian government’s intransigence, petty bureaucracy and business-unfriendly policies. In the past four months, three other high profile MNCs have pulled the plug on their Indian projects. Wal-Mart recently closed their partnership with Bhartia Enterprises, having been ordered to source at least 30% of its goods sold locally and other over restrictive government regulations on foreign investment. Similar regulatory problems have seen South Korea’s Posco scrap a US$ 5.3 billion steel mill project and Luxemburg-based ArcelorMittal cancel plans to build a second major steel plant. The Indian people will be the ultimate losers as BPP Billiton becomes yet Another One To Bite The Dust!

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Hold On

Posted on October 21, 2013 by howesdubai

BernabeuA raft of property projects was announced at last week’s Cityscape including Crystal Lagoons building the world’s largest man-made lagoon (40 ha), in the new Mohammed bin Rashid City, featuring beaches and waters similar to the Caribbean (at more than three times the size of its Sharm El Sheikh facility).The company has a portfolio of 250 projects in fifty countries.

Khalaf Ahmad Al Habtoor has announced the world’s biggest residential and hospitality development, Al Habtoor City, with more than 3,000 hotel and residential units. Located on the site of the old Metropolitan Hotel, on Sheikh Zayed Road, there will be three luxury hotels in the 10 million sq ft development, as well as two 4-level penthouses, with a price tag of US$ 250 million each!

Latest RERA figures indicate that there were 5,175 residential property transactions in Q3, totalling US$ 3.04 billion. Over the same period, average rental increases for all types of property came in at 3.5% – the same level as the previous quarter. Apartment rentals have increased at a quicker rate than villas, with a Q3 rise of 4.5% (and 28% year on year).

Also slowing down in Q3 were office rentals but that sector still remains buoyant, despite an oversupply of stock. The two big gainers were JLT – up 14% quarter on quarter and 75% year on year – and Business Bay –  nudging up 10% and 28% over the same time period.

Will Real Madrid alter its iconic Santiago Bernabeu stadium name to include that of Emirates? The airline is the club’s main sponsor and club president, Florentino Perez, has hinted of a change.

Dubai-owned QE2 Holdings has appointed the Chinese COSCO Group to refurbish its 294 mt long cruise liner into a luxury floating hotel. Within two years, 400 suites (60 to 150 sq mt) will replace the 990 rooms and the shopping mall, ten lounges, seven restaurants and ballroom will be revamped. Is it incongruous then, that it will be based in Hong Kong, rather than Dubai?

With a US$ 100 million expansion strategy, Malabar Gold and Diamonds plans to open 100 mini jewellery stores, over the next three years, in the UAE. The ‘Pink Chic’ brand will be located in shopping malls and hotels and will sell jewellery in the US$ 100 – US$ 1,000 range. The company has seventy outlets in India and thirty in the Gulf.

The 33% sales increase of Renault vehicles so far this year and BMW Q3 turnover jumping 18% are sure indicators of the current boom in the local economy. Likewise the 69% YTD surge in the volumes registered on the Dubai Gold and Commodities Exchange (DGCX). At the end of Q3, there had been 11.4 million contracts with currency futures up 77%.

Dubai Duty Free continues to grow with revenue up 12% to US$ 1.27 billion for the first nine months of 2013, and expectations of another record end of year,  when sales could top US$ 1.8 billion. Terminal 3 had a 17% increase to US$ 801 million whilst arrivals jumped 10% to US$ 125 million. The big-3 selling items were perfume (15.7% of all sales, at US$ 201 million), liquor and gold.

French wine producer is trying to sell a Balthazar (a 12 litre bottle) of its 2009 vintage Chateau Margaux for US$ 195k. If successful, this would be the highest price ever paid for a red wine. The 400-year old vineyard has produced only six of these bottles, three of which are on sale at Dubai International Airport.

The OECD has ranked the UAE as the world’s 16th most generous country as it has committed US$ 1.59 billion in foreign aid, of which 87% – or US$1.38 billion – will go on development projects. US$ 883 million (55.6%) of the aid is spent in Asia.

The Dubai Financial Market has been closed all week for the Eid al Adha break and will reopen for business on Sunday when the index will be at 2823 points. The market will see increased activity in the coming weeks, especially with the Q3 reporting season under way and some exciting results expected, especially from the local banks.

With the banks expecting to announce spectacular performances, it is just a pity that so often their service goes in the other direction.

The biggest bank in the US, JP Morgan, has not had a good Q3, reporting a loss for the three months of US$ 400 million, compared to a US$ 5.7 billion profit a year earlier, because of a further US$ 9.2 billion legal provision before tax. Since 2010, the financial institution has already put aside a massive US$ 23 billion to meet penalties and claims and has admitted that it may have to find a further US$ 6.8 billion! The two major problem areas are its sub-prime mortgage losses, that could end up costing US$ 11.0 billion (US$ 7 billion in penalties and US$ 4 billion in claims), and the London Whale Trading incident, that could top US$ 7.1 billion (US$ 6.2 billion in trading losses and US$ 920 million in penalties).

With figures like that being bandied about, there is no doubt that few lessons have been learnt from the GFC. Many of today’s banks continue to be too big to manage and too big to fail and this can only be a sure recipe for a future banking catastrophe.

It seems that the US is fast catching up with Saudi Arabia and Russia as the world’s largest crude oil producer. Thanks mainly to increased production from shale, the country is now the global oil supply leader (at 12.1 million bpd) when the likes of natural gas liquids and biofuels are added to its crude oil output of 3 million bpd. It is interesting to note that the US is the largest user of oil at a staggering 19.18 million bpd – far greater than China (9.06 million), Japan (4.45 million) and India (3.20 million).

The US economy will be helped by possible US$ 4 billion UAE government defence contracts including the purchase of Raytheon Joint Standoff Weapons and the Boeing Expanded-Response Standoff Land Attack Missiles. In addition, there will be requirements for training, software, related equipment, transportation and storage facilities. Next month is the Dubai Air Show, with probable Boeing orders from Emirates, for at least fifty 777-9x aircraft, and flydubai for fifty  737s – a welcome boost for the slowing US economy.

After sixteen days, the US farce came to its expected end as lawmakers produced a last-minute deal to stop the country defaulting on its debt. The compromise saw the Senate lift the US$ 16.7 trillion borrowing limit and re-open the government for business. There is every chance for this absurdity to reappear as the deal does not resolve the basic issues of spending and deficits and only funds the government until 15 January and raises the debt ceiling to 07 February 2014.

Unsurprisingly, the global markets responded well to the news as did the greenback which rose against most currencies. Whilst oil prices moved north to nearly US$ 111, the big loser was gold which continued its downward trend to dip to US$ 1,380 during the week, later rallying to close on Thursday at US$ 1,420. It is inevitable that this precious metal will see its first annual fall since 2001 and will continue to be a problematic investment, whilst the equity markets flirt with all-time highs. The message to those currently holding gold – Hold On.

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Start Me Up

Posted on October 17, 2013 by howesdubai

obama-laughingThis week saw the inevitable raft of new projects being announced that always coincides with Cityscape. Probably the most surprising property news of the week was Nakheel’s plan to restart work on the much delayed Palm Deira (now to be known as Deira Island). The change in name comes with a modification to the size of the development, with none of the original fronds being utilised. Despite this reduction, the island will still have 1,400 retail and food outlets, a 30k capacity ampitheatre and a 250-room hotel. There is every possibility that outside companies will be asked to tender for other areas in the development.

Another massive delayed project was brought back to life with news that Emaar Properties and Dubai Holding will restart work on the 6 million sq mt The Lagoons, located at the end of The Creek. This will include a central business district with the Dubai Twin Towers, schools, medical facilities and a hotel, and when completed will be three times the size of Downtown Dubai.

In 2008, there were plans to build an opera house on a Dubai Creek island but they were shelved because of the GFC. Now it seems that Dubai will finally have the most modern theatre in the world which can be converted to other uses such as for weddings, exhibitions etc. The 60k sq mt facility, shaped like a traditional dhow, will be completed by 2015.

Dubai Properties Group will start work with further developments of Culture Village, located on the Creek. This will include a 3.8km promenade with a retail souk, art centre and a residential area, Manazel Al Khour. Two of the major developments in this heritage location, the 6-start Palazzo Versace Hotel and D1 Residential Tower, will be completed next year.

DPG will also add new projects to its ‘The Walk’ in JBR, including yet another beachfront hotel. The area is home to 40k residents and welcomed over 13 million visitors in the past year.

Deyaar, now controlled by Dubai Islamic Bank, has confirmed that it will construct two tower blocks in Business Bay. The US$ 38 million received from a recent deal, together with a mix of bank loans and advance sales, will help finance these projects.

Meydan also used the property show to announce some major developments. As part of the new US$ 545 million, 3 km Dubai Canal Project, the organiser of the world’s richest horse race has formed a JV with Meraas to develop a 40 million sq ft site for up to US$ 9.5 billion worth of residential development, on either side of the canal. The JV has also commenced sales on its 520 mt high Entisar Tower, which will have 444 apartments.

Meydan Heights – with its 528 townhouses – will start receiving its first tenants, mostly Emirates pilots and staff, by the end of the year. It was no surprise that two other Meydan developments have already sold out. These are the 70 blocks of land for its upmarket Racecourse Villas and 120 Meydan Business Park plots.

Dubai Investments Real Estate Company has started work on three residential and commercial properties in Jumeirah, Mirdiff and Meydan. This comes after the success of its RITAJ project in Dubai Investments Park that comprised some 2k apartments, most of which have already been sold or leased.

Troubled developer, Union Properties, have also got in on the act, announcing six new projects. These include expansions of its Green Community and Motor City retail area – The Ribbon. It will also replace its proposed F1-branded theme park with a mixed-use development which will have a replica of the Champs-Elysees.

The DIFC zone is planning a US$ 4.1 billion expansion plan in a bid to attract more international companies. Currently only 60% of the total 25 million sq ft available is being utilised and suiters are being sought to develop the remaining area which is expected to be 65% offices, 20% residential and 15% retail.

On Tuesday, flydubai launched its first business class flight with FZ729 taking off for Kiev in the Ukraine. The three-year old airline already covers 65 destinations in 34 countries with more growth on the horizon.

The Dubai Financial Market General Index finally took a breather after a tumultuous six weeks of trading closing on Thursday on 2831 points – marginally up on its 2823 Sunday opening. The market is still 82.50% YTD and 2.5% up so far in October. The bourse will be closed next week for the Eid al Adha celebrations and will reopen on 20 October.

Meanwhile Dubai’s other stock market, Nasdaq Dubai, listed its first new stock in four years. However, the Bank of London and The Middle East saw no activity in its first day of trading on Tuesday. The only other stocks listed on this exchange are DP World and Depa Ltd.

A recent study by the Emirates Identity Authority (Eida) estimates that only 20% of the 150k new jobs generated in the country every year is being taken by Emiratis. 58.7%, or 88k, are Dubai-based.

It is reported that the country’s consolidated financial account (CFA) will hit a new high this year because of the high oil prices. The country has recovered well from its US$ 8.0 billion 2010 deficit. It is estimated that in 2008, the country needed oil at US$ 23.4 to break even which rose to US$ 92.4 in 2011 and has fallen back to US$ 80.0 last year.

Not one of the best forecasters, the IMF has once again had to change their growth estimate for the GCC. Only four months ago, they were predicting a 3.78% 2014 expansion but now have amended that to 4.4%.This will be 18.9% up on the expected 2013 growth of 3.7%. The rest of the world does not fare so well with the world body lowering their July growth forecasts by 0.3% to 2.9% this year and by 0.2% to 3.6% in 2014.

The 3 ‘I’s are in the news. India has seen its growth pegged back from 5.6% to 3.8% over the past three months and has been dogged by persistent high inflation rates and a significant downturn. Italy has been beset by its usual problems of red tape, weak government, fragile economy and high debt which stands at 133% of GDP. Ireland expects to exit the bailout programme by the end of the year having had to go to the EU and IMF for a US$ 115 billion loan in 2010.

Despite apparent conciliatory moves by Republican John Boehner, it seems that the US president is not in a mood to negotiate. By Thursday, the federal government had been virtually shut down for ten days with no apparent end in sight. Consequently, the world’s markets are becoming spooked and 1-month US government debt hit a five-year high. This impasse threatens to stop the raising of the country’s US$ 16.7 trillion debt ceiling by 17 October and could push the rest of the world into a major recession. The simple message to Obama is – Start Me Up!

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Here We Go Round The Mulberry Bush

Posted on October 8, 2013 by howesdubai

falkirk-wheelThe latest industry market report indicates that property prices continue to surge – up 42% over the past year. The usual factors driving prices are in evidence – political stability, buoyant local economy, growing demand, 2020 Expo etc. However such steep climbs may well be a precursor of another asset bubble, similar to what happened in 2008.

One of the drawbacks of this current property boom is the increase in the number of cold-calls from brokers and agents. As a result, the Real Estate Regulatory Agency (RERA) has notified all concerned parties that such direct telemarketing tactics are against its 2006 regulation 85 which could lead to fines for offenders.

The government is planning to spend US$ 545 million in building a canal that will link Business Bay to the Arabian Gulf. The 3km waterway will have to cross Sheikh Zayed Road, around Safa Park, as well as Al Wasl  and Jumeirah Beach roads and will be completed by 2017. It will cover 80k sq mt and will use a bridge – that could be based on the Falkirk Wheel in Scotland – to straddle SZR.

The oldest shopping mall in Dubai – Al Ghurair – has finally completed its first phase of a US$ 545 million revamp. Its retail expansion has 130 new shops and 350 other outlets covering 850k sq ft.

Habtoor Leighton Group has been awarded a US$ 75 million contract to build the next phase of the JAFZA One convention centre complex, as work restarted on the stalled US$ 518 million project. The contract will cover the interior fit-out of one of the twin commercial towers which is part of the development that will include a hotel and associated exhibition and recreational facilities.

A reflection of Dubai’s economic upturn saw a 15.3% rise in the number of new licenses issued by the Department of Economic Development with an August total of 1,148. There were also increases in issued trade names (up by 27.2% to 4,840) and initial approvals by 23.3% to 1,629 during the month.

It is estimated that the UAE has plans, totalling US$ 58 billion, for future expenditure on its roads and bridges. With that amount of investment, it is no wonder that, according to the latest Travel and Tourism Competitiveness Report, the country ranks second in the world for roads quality. Shame about the driving!

In a move to encourage more budget hotels, newly built properties, in the 3-4 star brackets, will be granted a concession on the current 10% municipality fee. The waiver of the levy, charged on the nightly room rate, will be for a four year period.

Ducab and Abu Dhabi’s Senaat have formed a JV to build a 50k tpa aluminium rod mill. The new entity, Ducab Aluminium, will manufacture Electrical Conductive grade aluminium rods with the project slated to cost US$ 60.0 million and will be located in the Khalifa Industrial Zone.

An initial agreement has been signed between the Dubai Supreme Council of Energy and the China Sonangol Group to build a crude oil refinery in the emirate. This is seen as a necessary move as Dubai‘s energy requirements continue to grow in line with its booming economy.

The Dubai Financial Market witnessed a mesmeric Q3 gain of 24.2% closing at 2762, following a Q2 increase of 21.5%. Thursday’s closing bell saw the market at 2823 – a 3.1% jump on the Sunday opening of 2737 and 81.99% up for the year to date. Bellwether stocks, Emaar and Arabtec, were higher closing on US$ 1.64 and US$ 0.73 respectively.

There is speculation that the Dubai and Abu Dhabi bourses are discussing a possible merger, a move that would attract more foreign investment. On Wednesday, the share value of Dubai Financial Market was 15% limit up – a sure indicator that this on-off deal is back on the table.

A long awaited, but welcome, move by the local banks sees the first phase of the introduction of a direct debit scheme being implemented from 05 October. Initially, all post-dated cheques will be transferred to the new system and then all loan repayments will be gradually phased in, followed by payments such as DEWA, insurance, credit cards, telecoms etc.

Hot on the heels of HSBC, it seems that troubled British bank, Barclays, has begun to cull their retail accounts in Dubai. It appears that both banks have had communication problems with customers, some of whom have claimed lack of information and notification. Confirming recent reports, it is no surprise to see Barclays plc decide to move out of retail banking in Dubai to concentrate on its core business of investment and corporate banking.

With UK Chancellor hinting that the country will be in austerity until 2020, German and Spanish September jobless figures rising and Berlusconi trying to topple the Italian government yet again, it is little wonder that the ECB president, Mario Draghi, thinks that European economic recovery is ‘weak, fragile and uneven’. Unemployment in the eurozone is at 19.2 million with Austria the country with the least unemployment at 4.9% and Greece at the other end of the scale with 27.9%. Even more disturbing is the fact that the total EU number of those aged under 25, not working, now stands at 23.7%.

The last thing the US economy needed was an impasse that saw 800k public workers forced to stay at home. It will further damage an already fragile domestic economy, with below 2% growth expected this year, and have serious repercussions across the globe, if the shutdown is prolonged, there will be widespread economic collateral damage that will result in a major global recession. Furthermore, it may be interesting to see China’s reaction to a weaker dollar and a stronger yuan.

Monday was the first day that the US government went into shutdown after Congress failed to approve next year’s funding. Nothing new as this is the 18th time in the past thirty-five years that this has happened.  Once again – Here We Go Round The Mulberry Bush.

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Don’t Stop Me Now

Posted on October 3, 2013 by howesdubai

dmcc-multiplexNow officially the emirate’s largest free zone – with over 7,300 registered companies – DMCC have contracted Brookfield Multiplex to design and construct ‘One JLT’, a glass-box style building. On completion, this impressive world-class building will cover 23.4k sq mt and be located in the middle of the 65 mixed-use residential and commercial tower JLT development. Maybe it is not beyond the realms of possibility to visualise the world’s tallest tower being built there in the not too distant future.

One unnamed landlord is taking advantage of the current boom in real estate prices by releasing 300 apartments in JBR. With apartment prices in Shams 1 ranging from US$ 327k to US$ 872k – 34% up on last year – and a growing demand for beachfront property, these apartments will be sold quickly.

A few more than usual potential buyers will be trying to seal deals this week, with news that the property transfer fee is set to double to 4%, effective from 06 October. The reason for this surprise move is to curtail the practice of flipping which was prevalent in the halcyon days of 2008, resulting in an asset bubble that spectacularly burst bringing Dubai to its economic knees.

Yet another hotel is planned for the Dubai Marina area with the TAJ RP International Limited has signing an agreement with the Intercontinental Hotels Group. The 280-room property is slated for completion by 2016 and will be the fourth Crowne Plaza in Dubai.

As part of its US$ 409 million investment strategy, R Hotels is planning to open its second Dubai hotel, in JBR, in Q4 2013. The company has also reportedly started work on another property on Palm Jumeirah.

Meanwhile, the Palazzo Versace is now expected to open by the end of 2014 – five years later than originally planned. The US$ 626 million project is being developed by Enshaa Services Group that initially had a JV with the Australian-based Sunland Group. However, a 2011 swap deal saw Enshaa take 100% in exchange for the Versace Hotel on the Australian Gold Coast.

A recent survey shows that Dubai’s waterfront hotels had the best profitability rates in the Middle East. Occupancy rates have risen by 3.7% to 84.0% whilst ADR has surged 4.85% to a creditable US$ 389.00.

With Emirates planning to start phasing out their current fleet of 120  777s in 2017, Boeing are hoping that their largest customer will shortly place a new order for the new long-range 777-9X. Some expect a major announcement to be made at November’s Dubai Air Show – whether this will surpass the Emirates’ US$ 18 billion order last time round, two years ago, remains to be seen.

Within a year, Emirates SkyCargo will move its operations to the new terminal at Al Maktoum International Airport. On completion, the fully automated facility, at the world’s first purpose-built aerotropolis, will be able to handle up to 1 million tonnes of cargo.

Although year on year August monthly cargo figures actually contracted by 3.1% to 185k tonnes, YTD returns are 8.1% higher at 1.59 million tonnes. Passenger traffic for August was up by 23.8% to just shy of 6 million whilst YTD is 16.4% up at almost 44 million.

Another indicator of the confidence in the local economy is that 2013 vehicle sales are expected to top the all-time high of 346k units, reached in 2008.

It was no surprise to see Lindner Depa Interiors file a US$ 245 million arbitration claim against New Doha International Airport. The company – a JV between Germany’s Linder AG and Dubai’s Depa Limited – had its contract terminated in June for their refusal to accept new terms and conditions.

Despite the global slowdown in trade, the UAE continues to expand with 2012 imports of US$ 273.5 billion – accounting for 26.8% of all the region’s imports, of US$ 1,022 billion, and even surpassing Saudi Arabia with its US$ 211 billion total. However its exports of US$ 314 billion (or 21.7% of the total) were less than Saudi’s US$ 410 billion. The extent of the country’s impressive growth can be seen from the fact that over the past five years, exports have grown in excess of 27% annually and imports by 24%.

The Dubai Financial Market has had a turbulent September so far starting the month at 2523 points and closing on Thursday 8.5% up at 2737. However, the past four weeks have witnessed a 7.4% fall to 2337, followed by an 8.6 gain to 2538, a 5.0% rise to 2666 followed this week by a modest (by Dubai standards) increase of 2.7%.

Gold continues to lose its shine and is hovering around the US$1,320 per oz mark; it is already down 5% in September, 20% YTD and 25% over the past year. The fact that the Federal Reserve decided to maintain its US$ 85 billion monthly stimulus package has probably stopped the precious metal from testing the US$ 1,250 level or lower.

Next week, the USA will finally exceed its legal borrowing limit, set at US$ 16.7 trillion, and will balance on the edge of another financial cliff. If no further action is forthcoming, then the country will run out of cash by the end of October, resulting in cuts, job losses and potential loan defaults, with serious repercussions for the country’s economy. So much for the world’s leading democracy in action!

Whilst most of the global economies seem to be struggling, Dubai is still full steam ahead with a simple message – Don’t Stop Me Now!

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Shiny Happy People

Posted on September 14, 2013 by howesdubai

dubai-paddle-boardScarcely a week goes by without some report reaffirming the buoyancy of the Dubai real estate sector; the latest, that house prices are rising faster than anywhere else on the planet. With an annual 21.7% surge in the year to June 2013, the emirate leads the likes of Hong Kong (19.1%), Turkey (12.2%) and Brazil (11.9%), and is well ahead of mainland Europe, which managed a meagre 0.7% rise, and poor Greece, recording a fall of 11.5%.

Unfortunately, it came as no surprise to see July hospitality figures indicating a decline in both revenue and profit;  the double whammy of the holy month of Ramadan and the summer heat, resulted in falls in RevPAR (16.8%) and occupancy from 65.1% to 54.6% – however ARR crept up by 2.2% to US$ 196.87.

Dubai developer, Sheffield Holdings, is working with US-based Hampshire Hotels Management to invest in and run the Dream Dubai Marina. The 101-storey, 420 mt high, building will cost an estimated  US$ 410 million, and house 300 hotel rooms and 420 serviced apartments – the hotel is expected to open late next year whilst the remainder to be ready by 2017.

Damac Properties awarded its largest ever contract of US$ 272 million to Turkish company, TAV Tepe Afken Investment, to build its Damac Towers by Paramount. The four-tower development will include the luxury Paramount Hotel, with the other three buildings as serviced residences and is slated for completion within thirty-three months.

Drake and Scull have been awarded an Abu Dhabi government contract, valued at US$ 68 million, which brings their projects signed this year to a credible US$ 1.66 billion. The capital seems to be a good hunting ground for the Dubai-based company as it has recently procured work for the Fairmont Hotel and the prestigious Louvre Museum.

Majid Al Futtaim is planning to spend US$ 272 million further expanding its flagship Mall of the Emirates. The project – Evolution 2015 – will see a new fashion area, a sports and leisure zone along with additional luxury retail outlet and is expected to be finished within two years.

The Al Futtaim Group, with franchise rights to Toyota, Lexus, Honda, Jeep and others in Dubai, is to move further afield, with its first investment in Africa. It has offered US$ 86 million to take over CMC Holdings with its exclusive Ford distributorship in Kenya, Uganda and Tanzania.

Flydubai, one of the world’s fastest growing airlines, has announced its 66th destination – this time to Chisinau in Moldova. Interestingly, this will be the low cost carrier’s 45th destination that previously did not have direct UAE carrier links to Dubai. These new destinations can only benefit Dubai’s burgeouning trade and tourism sectors.

Following weeks of negotiations, Dubai Aerospace Enterprise has failed to cut a proposed deal with BBA Aviation. It was reported that the British based aircraft services company was in merger talks with US StandardAero – a company bought by DAE in 2007.

Already running the world’s longest driverless metro system at 75km, the RTA is planning to extend its network by almost 50% with 24km and 12km extensions to its Red and Green Lines respectively. Its current fleet of 58 trains carry over 366k passengers daily.

Although not in the same league as the big boys, Dubai continues to expand its foreign exchange trading. Currently, the UK takes 41.0% of the total trade with the US (19.0%), Singapore (5.7%), Japan (5.6%) and Hong Kong (4.1%) making up the top five forex centres. The Dubai Gold and Commodities Exchange witnessed a 23% increase in August business with currencies accounting for 97% of the 1.159 million trades – an impressive 89% surge in YTD business.

This week, there was a 5.7%  hike in the price of diesel sold in Dubai by the locally government-owned Emirates National Oil Company (Enoc), and its subsidiary, Emirates Petroleum Products Company (Eppco), to US$ 1.00 per litre. Emarat, Dubai’s third fuel retailer, established by the federal government, has followed suit. However, it is reported that Abu Dhabi’s Adnoc has fixed its diesel price at US$ 0.89. Unlike diesel, federal authorities fix the petrol price which is currently being sold at the subsidised rate of US$ 0.47.

Dubai Holding Investment Group has renegotiated a US$ 1.2 billion loan agreement with its creditors, who have agreed to an extension until 2020. DHIG is part of Dubai Holding and was formed by the amalgamation of Dubai Group and Dubai International Capital.

H1 saw Dubai’s exports jump 21.7% to US$ 22.9 billion whilst its imports rose by 16.3% to US$ 110.6 billion. In 2012, Dubai’s foreign trade growth rose 13% and in H1, this has improved by 16.2% to US$ 159.1 billion. As usual, gold was both the top imported and exported commodity at US$ 22.1 billion and US$ 13.6 billion respectively.

Central Bank reports highlight the fact that during the first seven months of the year, money supply aggregate M2 (currency, current accounts, call accounts and deposit accounts) increased by 8% to US$ 253.3 billion, The other positive news is that bank deposits have jumped 7.3% to US$ 341.4 billion, and bank loans and advances by 5.6% to US$ 316.3 billion.

Australian property developer, Sunland lost its US$ 15.5 million appeal against Matthew Joyce and Angus Reed, former employees of Nakheel. The three Australian judges rejected the appeal as “groundless” in a case that involved another Australian company, Prudentia, in an alleged scam to secure a Nakheel Dubai Waterfront plot, known as D17. In May, both men were found guilty of fraud in a Dubai court and received ten year sentences. Reed had already left the country whilst Joyce, the former GM of Dubai Waterfront, was also fined US$ 25 million and is under house arrest whilst his appeal is being heard.

Another week sees another roller coaster ride for the Dubai Financial Market General Index. Having lost 6.6% and 9.3% over the past two weeks, it opened on Sunday at 2337 points and regained 8.3% to close on 2539. Whether this week’s movement represents a ‘dead cat bounce’ remains to be seen.

It seems that the slower growth pattern coming out of China earlier in the year has now begun to move in the other direction with most analysts predicting that the world’s second largest economy will edge towards 8% growth, at least in the short-term. New credit was seen to be expanding in August with 45% (or US$ 115.6 billion) attributable to new loans – this plus the fastest gain in industrial output are positive signs that recovery is taking hold. Although one warning sign is that the country’s ratio of credit to GDP stands at an exceptionally high 187% and another potential problem is that only 3% (1.25 million) of the country’s SMEs are able to secure  a bank loan, hence the other 97% rely on the flourishing but unregulated shadow banking system. (Some estimate this sector could account for nearly 70% of China’s GDP equivalent to US$ 5.72 trillion).

Consumer confidence is fast returning to the Australian economy in the wake of the election of Tony Abbott and the ousting of the Labour government, latterly led by Kevin Rudd and previously by Julia Gillard. The new coalition is promising to cut red tape and lower taxes as it declares that, once again, Australia is open for business. It will receive an added boost with the upbeat news from China which will prove a fillip for the country’s resources sector. House prices have shown an annual 5.3% rise and with the current feel good factor in play, allied with low interest rates (2.25%), this trend is set to continue.

Its neighbour, Indonesia, is not faring as well with soaring inflation (fastest growing since 2009), a falling currency (already down 11% in Q3) and a widening current account deficit (US$ 9.8 billion). This week, it sold US$ 1.5 billion of sukuks at the highest rate (6.125%) in six years, compared to its last foray ten months ago when the rate was 3.3%. Its current deposit facility rate is at a high 7.25% and is bound to rise even further this month as the country’s economy deteriorates.

There is an inevitability to the Federal Reserve start to cutting back on its QE3 policy, of US$ 85 billion monthly bond-buying, sometime this month. That being the case, there is a strong argument for gold prices to ease downwards, perhaps to the US$ 1,200 level, not helped by steady low inflation rates and an upturn in the global economy. At noon Thursday, it was trading lower at US$ 1,339 (compared to US$ 1,924 in September 2012 – 30.4% down).

A week after its buildings were rated the vainest in the world comes news that the UAE is one of the planet’s happiest countries. It is now ranked number 14 and moving up on the previous report. Some may think that the UN would be better served trying to broker peace in places like Syria and Central Africa, but no they have published “The World’s Happiness Report 2013”. HH Sheikh Mohammed bin Rashid al Maktoum has been quoted that “all development plans that we approved, all initiatives that we launched and all government policies and laws, have one common goal – achieving the happiness of our people”. No wonder then that with the economy booming, a stock market rising 8.5% in one day, and the imminent arrival of perfect winter weather, Dubai is full of Shiny Happy People!

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You’re So Vain

Posted on September 10, 2013 by howesdubai

dubai-fountainAfter a relatively quiet period of reported new projects, Arady Developments – a JV between Deyaar Development and Dubai Properties Group – announced the launch of a 48-storey residential tower. Located in the Dubai International Financial Centre, this forms part of the 1.57 million sq ft Central Park plan. The building will house 426 apartments along with the usual accoutrements – swimming pools, exclusive shopping area and dining outlets – and will be completed by the end of next year.

There is a wide range of opinion on the state of Dubai’s residential market from an almost fully blown bubble to a continuing boom for the foreseeable future.  The former is driven by speculation, the latter by strong fundamentals of economic growth, rising population, increasing business confidence and strong demand. The truth is probably somewhere in the middle. In the past four years, the number of residential units has risen over 37% to an estimated total of 360k and is expected to rise by a further 11% to around 400k by the end of 2015. What will shake the sector will be any dent in consumer confidence and a further deterioration in the global economy – both are distinct possibilities. Any market that climbs so quickly, in such a short time span, is heading for trouble!

Yet another international hotel group is planning to start operations in Dubai. This time, the 672-room TRYP by Wyndham Dubai, to be located in Al Barsha, will be completed in 2016. The US-based group is the world’s largest and most diverse hotel company, managing over 7,400 properties, and has signed an agreement with The First Group.

It is only two years since government-owned DP World was forced to restructure US$ 25 billion of debt. Since then, the company has had to sell off non-core assets, as part of its deal with creditors – the latest of which is reportedly its 50% share in Miami’s Fontainebleau Hotel for which it paid US$ 375 million in 2008. In July, the company sold Gazeley, the logistics warehouse developer, to Brookfield Asset Management.

Just as Emirates will soon start flights to a second Philippines destination, Clark, dnata has announced that it will take over airport handling operations there. This will be the Dubai-based air service provider’s 75th global location.

A major mechanical, electrical and plumbing contract – valued at US$ 113 million – has been awarded to Drake & Scull International for work on the new Louvre Museum, being built in Abu Dhabi. Another Dubai company – Arabtec – is the main contractor on the US$ 653 million development, due to be completed within two years.

In line with other free zones, the Dubai International Finance Centre, is showing impressive growth figures. In H1, there was a 7% increase in companies to 979 whilst the number of employees rose by 1k to 15k. The DIFC is working close to full capacity and is currently utilising 372k sq ft of space, not owned or managed by the authority. A recent survey puts Dubai as the sixth in the ranking of international business centres.

Confirming recent reports, it is no surprise to see Barclays plc decide to move out of retail banking in Dubai to concentrate on its core business of investment and corporate banking. Up to 280 employees are in danger of losing their jobs as the UK’s third largest bank is still reeling from a 17% drop in H1 global profits to US$ 5.6 billion. Furthermore, there are reports that, over the past three years, the bank has paid out US$ 10.9 billion in bonuses, US$ 9.4 billion in fines and only US$ 3.1 billion in dividends.

Two local entities are seemingly in the market to raise funds. Dubai Duty Free estimates it will need US$ 750 million for its expansion plans. In 2012, DDF took out a six-year US$ 1.75 billion syndicated loan – a first foray into debt finance in its thirty year history. Last year, revenue reached new heights, topping US$ 1.6 billion and with H1 sales already at US$ 874 million, it is expected to reach US$ 1.8 billion by the end of 2013. Meanwhile, Majid Al Futtaim Holding is hoping to raise US$ 1.5 billion using a revolving credit facility.

The country’s love affair with the US continues as H1 imports rose 25.2% to US$ 13.7 billion and exports, largely crude oil, increased by 11.2% to US$ 1.4 billion. Interestingly, the country is the largest ME market for US imports, accounting for 26% of the total.

Australians go to the polls this weekend in an election that will probably see Australia swearing in its third prime minister (Tony Abbott) within the past three months. The country has suffered from a slowdown in its resource sector and, until recently, an over-valued dollar and this has had a negative impact on its trade to the region. Although the UAE is still Australia’s prime market, latest trade figures indicate a 13.0% slump to US$ 4.7 billion.

For the first time, the World Economic Forum has ranked the UAE as one of the top twenty most productive economies in the world – moving up five places to number 19 this year. There was no real surprise in the top 5 – Switzerland, Singapore, Finland, Germany and the US – but a slight shock to see Qatar, the highest-ranked ME nation, at number 13. The report added that UAE could improve further by investing in the health and education sectors.

Although not in the top twenty of yet another report, the country has made significant progress in the recently released Global Built Asset Wealth Index. The study, which tries to quantify the value of all public and private property along with infrastructure, estimates its value at US$ 1 trillion! This gives a per capita built asset wealth of US$ 123k.

August saw no movement in the UAE PMI which stayed unchanged at 54.5 points – an indicator on how well the economy is tracking. Latest figures show that consumer price inflation remains static at an annual rate of 1.3%.

This could be a gilded week for some 10k residents who entered the month-long “Your Weight in Gold” campaign. Participants will receive 2 gm of gold for every kg lost over 5 kg and 3 gm per kg if they lose 10 kg or more.

The Dubai Financial Market General Index took a another pasting this week – largely because of the continuing regional geo-political unrest, especially in Syria. Having lost 6.6% last week, it opened on Sunday at 2523 points and nose-dived another 9.3% to a Thursday close of 2337.

There is an ever-growing feeling that the global stock markets are heading for a major downward revision despite many pre-GFC highs being recorded in August. In the US, Dow indicators such as EPS (falling), PE ratios (rising) and volatility levels (at historic lows) all point to a pending crisis.

There were two massive telecom deals this week with the largest, by far, the Vodafone sale of its 45% share in their US JV with Verizon for US$ 130 billion. (To put this into perspective, this figure is almost the same as Dubai’s reported public debt). The other deal saw Microsoft pay US$ 7.2 billion for Nokia’s mobile business, as well as licensing the Finnish company’s patents and brand name for the next decade.

Slow global growth patterns present the biggest economic s challenge as the G20 meeting this week in St Petersburg at a meeting which will be dominated by Syria. However there is mounting economic concern about the sudden fall of the BRIC economies which have been blighted by plummeting currencies and slowing growth. They will feel even more pressure if and when the Fed starts cutting back its QE programme, resulting in even more selling of the weak currencies.

Although there are promising signs out of Europe, all is not well. Attempts by some countries to rail in public spending and, at the same time, introduce austerity packages have proved counterproductive. Instead of stimulating growth and economic activity, it has resulted in reduced tax receipts, higher unemployment and increased benefit payments. Someone has to pay for this folly. In the event of citizens of say Spain and Italy seeing their bank deposits raided, like their Cypriot neighbours, the world will then see the eurozone in a real crisis.

Dubai has another world record and this time it can boast having six of the top 10 vainest skyscrapers (any building over 985 ft) in the world. A recent report has claimed that the emirate’s skyscrapers waste 19% of their total space. It can only be a matter of time before the fountain music in front of the vainest of all buildings – the Burj Khalifa with 29% of “wasted” space – will be changed to You’re So Vain.

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