Glory Days

Posted on March 16, 2012 by howesdubai

There are several news items confirming that Dubai is striving to return to its former glory. First, the STR Global Report places Dubai hotels number 1 in the world when it comes to occupancy (86.2%) and Revenue per Room (RevPar) and second only to Paris in relation to Average Room Rate (US$ 270). There again many of us already knew that the French capital is way overpriced.

Furthermore 9.3 million tourists visited Dubai in 2011 – a 10% increase on the previous year. Hoteliers were happy to see their Revenues jump 20%.

Many of these tourists would have had the pleasure of flying in with Emirates and the boost in this sector is part of the reason that regional air traffic jumped almost 15% in January. The IATA report also confirmed this to be the fastest growth rate of any area in the world.

It was also reported that the airline’s bond yield has fallen to a record low already this year and now hovers around the 4.4% mark. Similarly the debt default risk for Dubai has continued to fall with the yield on the government’s 6.7% debt now around 5%.

Further evidence – if it were needed – that residential real estate was on the up came with the news that house prices rose a further 2.3% in Q4 2011. According to a report from Knight Frank, Dubai currently stands at number 12 globally in terms of house price appreciation.

With the US$ 1 billion Al Sufouh tram project back on track, further confirmation that the RTA is planning to spend US$ 12 billion on infrastructure including adding a further 500 kilometres to the public transport network.

One of its major headaches will be to ensure that the different transport modes – rail, tram, monorail, abras etc – all connect without the need to walk – especially during the summer heat.

As a sign that Nakheel is back in business, the company is planning to double the size of its two major retail centres – Ibn Batuta Mall and Dragon Mart. The former – recognised as the largest theme mall in the world – already covers 320k square metres whilst the Chinese-centric facility will see an additional 160 square metres added to its current size.

Retail space has evidently increased 60% since 2005 and one would imagine that a temporary saturation point would be reached soon. But there again this is Dubai!

As Dubai continues to improve its energy efficiency, DEWA announced this week that it plans to issue bids in Q3 for the first phase of its US$ 3.3 billion solar park that will generate 1,000 megawatts of power when on-line.

It seems that banks everywhere are trying to cut costs by reducing staff numbers. For example, in the UK, RBS have just announced a culling of 5,000 workers whilst there are unconfirmed reports that here Emirates NBD is planning to lay off 15% of their workforce. Whilst unfortunate for those losing their jobs, we can only hope that this sends a message to the remaining bank employees that it is their customers who pay them and it is their customers who, by and large, are unhappy with their woeful – and often non-existent service. This is a major problem not only peculiar to Dubai.

No wonder then that the Central Bank is looking at consolidating its consumer protection unit, responsible for handling stakeholders’ grievances about the country’s financial institutions. It has to be a win win situation if levels of services were improved and banks started to look after their customers with fairer rates and charges on its credit cards, mortgages and personal loans.

This week the Dubai Financial Market did regain most of the losses incurred a week earlier with the Index currently standing at 1682 – or about 24% up since the beginning of the year. There is obviously some under-valued stock around but any trading should be carried out with some caution in such a volatile arena.

Although not unexpected, but still unwelcome for Dubai traders, is the fact that the Iranian rial has fallen about 50% against the dirham in black market trading since November 2011. This in turn makes Dubai exports more expensive and the problem is further exacerbated by the fact that trade finance has almost dried up. Tough US, UN and EU sanctions are having their impact not only in Iran but also in Dubai where some exporters are still owed money from their Iranian customers.

This week has seen Greece receive a temporary reprieve from its economic woes but it can only be a matter of time before the inevitable conclusion. Is it only the politicians who cannot see that good money should never follow bad money?

Finally what evidence does the UN require before we see positive action in Syria? What is happening there beggars belief and there are some people – not only in that country – that will have their day of judgement.

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Good Vibrations

Posted on March 8, 2012 by howesdubai

Good news again for Dubai – this time from the aviation industry as Flydubai announces an 82% jump in their passenger numbers over the past year. With new routes opening up and a further 25% increase in its fleet this year, there is no doubt that in another twelve months, we will be witnessing more impressive growth from a carrier that has not yet been flying three years.

In addition, Emirates recently received Boeing’s 1000th 777 – not unexpected as they are their biggest customer for this model (helped by their last order in November 2011 totalling US$ 26 billion for 70 of these planes). Some tend to forget the impact of what this sort of trade has on the US economy! With its 122 destinations, the Dubai-based carrier is now the largest in the world in terms of international revenue passenger kilometres.

Another positive indicator is that the real estate market continues to improve. Official figures show the number of deals (448) in the first two months of 2012 was a massive 84% up on the 2011 equivalent. Furthermore the value of deals exceeded US$ 1 billion. These are sure signs that the market is becoming more stabilised.

Dubai has recently fallen 16 places in the EIU’s Worldwide Coast of Living Survey to 94th in the world. This is good news for its residents because it shows that the emirate is becoming more affordable, making Dubai a more competitive and attractive place for potential investors and incoming companies.

If you believe some pundits about the price of gold going through the stratosphere, you could do worse than purchasing some of UAE’s first gold coins which will be available to the general public later in the month.

As intimated in previous blogs, it is overseas events which will have a possible negative impact on Dubai’s drive forward. The never-ending Greek saga, the euro-zone debt crisis and on-going regional unrest are all contributors to a credit squeeze that has seen local banks constraining loans across the board. For instance, it has been reported that Mashreq Bank saw its loan portfolio drop by 8.5% to US$ 10 billion whilst Emirates Islamic Bank fell 11.3% to US$ 3.5 billion. Of all Dubai-based banks, only Dubai Islamic Bank did not experience a fall in its total assets.

As suggested in last week’s blog, the bull run on the Dubai Financial Market did stall with the Index 5% down at 1607. Despite this respite, the market is still almost 20% up since the beginning of the year.

The Sword of Damocles hangs over Greece as later today we will see whether investors have agreed to a 70% haircut on Euro 408 billion of government bonds. (That is some haircut!).  Otherwise the country may be returning to the drachma quicker than expected. Small wonder that Moody’s became the third credit rating agency to cut its sovereign debt rating to the lowest possible level of Ca.

Greece is not the only cause of the euro-zone crisis and its problems are only the tip of the European debt problem. There is little doubt that very low growth (and even recession) will be the order of the day for European countries. In turn there will be further spending cuts, massive austerity packages, higher unemployment and inevitably social unrest.

This will have a knock-on effect on China as demand from its single biggest customer begins to shrink. Then it will be very interesting to see the effect on the price of oil, natural resources etc.

Iranian tensions keep surfacing and again this is a problem that requires action and some form of closure. Without any resolution, it will continue to bring instability and tension for Dubai and the region

Finally, when will the powers-to-be (whoever they are) get off their backsides and do something about the unbelievable tragedy that continues unabated in Syria?

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It’s Getting Better All The Time

Posted on March 2, 2012 by howesdubai

Just when the doomsayers were predicting the implosion of local real estate, it has been reported that over US$ 15 billion worth of construction contracts are to be awarded in the UAE in 2012 bringing the country’s total construction work-in-progress to a staggering US$1.25 trillion.

Also work on the stalled US$ 675 million Al Sufouh Tram project is to be resumed and the first phase will be a ten-kilometre link between Dubai Marina and Knowledge Village.

It was encouraging to see that Nakheel has announced its return to the market by launching several new projects including a destination mall on the Palm Jumeirah and expansion of the Dragon Mart. Following on from its restructuring – in both debt and ownership – latest figures show that its Revenue was over US$ 400 million in the six months to December.

Earlier in the week, the Dubai/Australian company, Habtoor Leighton Group was awarded a US$ 130 million contract for work on the Jewel of The Creek, part of a US$1 billion development, aimed at reinvigorating the Deira side of the iconic Dubai Creek.

The Nakheel / Australian link was in further  evidence with news that their former CEO, Ozzie Chris O’Donnell, has been awarded US$ 3.7 million in severance pay, following his departure from the company in June 2011. A pity for him to see the strength of the Australian dollar, currently trading at almost AED 4 if he wants to convert.

DP World, the global marine terminal operator, continues the Dubai good news story by announcing another record year. In 2011, it handled a staggering 54.7 million TEU (20 foot equivalent container units), more than 10% up on the 2010 results. UAE growth was an even more impressive 12% year on year increase handling 13 million TEU.

Then from sea to air even better news from Dubai International Airport. January witnessed a 14% rise in passenger numbers up to 4.85 million from 4.25 million a year earlier.

No wonder then that Dubai hotels continue with their impressive growth pattern into 2012. GCC demand continues unabated along with larger number of visitors also arriving from India and China.

HSBC announced its 2011 results showing that it made a profit of US$ 21.8 billion. The relative strength of the local economy can be seen from the fact that its profits were 15% up on last year whereas its Middle East Unit reported a massive 67% hike in its profits to US$ 1.4 billion.

Every cloud has a silver lining and there are indications that over 20% of deposit funds (about US$ 1.8 billion) have left Syrian banks. No doubt some of this money is now lodged here in Dubai.

The local Central Bank is to report this May and may recommend a major overhaul in retail banking. Don’t be surprised to see some much needed changes in regulations to credit cards, personal loans and mortgages – which could be in favour of the consumer. (If only they could do something about the woeful customer service found in many of the financial institutions!)

The Dubai Financial Market General Index continues to defy gravity and is now trading at 1698 –almost 25% up since the start of the calendar year when it stood at 1353. It must be time to reflect before the inevitable happens.

According to an IMF estimate, the country had a per capita income of US$48,597 in 2011, making its residents the sixth-richest in the world.

So when we make comparisons with other parts of the world, maybe life here is not as bad as some  overseas media try to have us believe.

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Happy Days are Still Here

Posted on February 22, 2012 by howesdubai

The local economy has again been boosted by this week’s Gulfood Exhibition. With more than 80 countries represented and 3,800 exhibitors, the event is the biggest to date. Further good news for Dubai including its hotel sector.

According to a recently published 2011 report, Dubai hotels outperformed other markets in the Middle East with rises in their Revenue, Occupancies and Room Rates. It is interesting to see that the average RevPar (Revenue per Available Room) came in at US$ 174 whilst beach front properties showed an even higher return of US$ 255. The 2012 outlook is even brighter!

Dubai International Capital (DIC) bought Travelodge in 2006 for close on US$ 1 billion. The company has nearly 500 hotels located primarily in the UK, but also in Ireland and Spain. Despite a 16% jump in Revenue, in 2011, to over US$ 570 million and Profit rising 20% to around US$ 85 million, it has still been forced to replace an existing US$90 million medium term loan facility.

The Dubai Duty Free Tennis Championships also started this week with the WTA US$ 2 million extravaganza featuring six of the top ten lady players. The following week will see the men and the likes of Djokovic, Federer and Murray. Not only will this increase the demand on hotel rooms, it will give an unrivalled marketing opportunity as 400 million television viewers watch the action from Dubai.

Whilst on the subject of tennis, it was not unsurprising to see that Emirates Airlines has signed on as the title sponsor of the US Open tennis tournament. The deal – estimated at US$ 90 million – was for seven years and included nine other events leading up to the last grand slam event of the year. Furthermore Emirates becomes the event’s official airline.

Last financial year, Emirates Group posted Revenue returns of US$14.8 billion (and Net Profit of US$1.6 billion) and September 2011 half-yearly figures saw a year on year 15% hike to US$ 8.3 billion. In comparison,  the total 2011 revenues of Dubai Taxi Corporation showed a 22% year on year improvement to just under US$  0.29 billion. Last year, DTC drivers made over 62 million trips and carried 125 million passengers which slightly more than the 31 million passengers flying Emirates last year!

Sheikh Ahmad bin Saeed Al Maktoum is not only the Chairman of the Emirates Group but also holds the same position on the Dubai Supreme Fiscal Committee. At the recent Economic Outlook 2012 conference he confirmed that he expected Dubai’s GDP to grow by at least 4.5% this year well up on the 3% recorded in 2011. Last year, trade, logistics, transportation and tourism accounted for almost 60% of Dubai’s GDP. This is a pointer on how well the Dubai economy is holding up during the current economic malaise.

The Dubai Financial Market General Index continues to defy gravity and is now trading at 1596 – a mammoth15.93% up since the start of the calendar year.

The Greek Tragedy continues despite agreement on a US$ 170 billion rescue deal for the embattled home of democracy which also received a private creditor debt write-off worth of around US$ 140 billion. It does not take a genius to see that this deal is dead in the water from the outset and only a matter of time before this tragedy turns to farce.

The Iran crisis continues with no end in sight and the possibility of future conflict has seen oil trading near its peaks of the past year. Currently Brent crude is trading at US$ 119 but don’t be surprised if oil does pass its all-time highs during the year.

Any further deterioration in either of these areas will have a negative impact on the global economy – including that of Dubai.

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Happy Days are Here Again

Posted on February 18, 2012 by howesdubai

There are continuing positive signs that Dubai is coping well despite the financial malaise which is inflicting most of the world.

As Dubai continues its quest to become the biggest shopping and leisure destination in the world, this week’s news is that the jewel in its crown, Dubai Mall, is planning to extend by a further 1 million square feet. Already the world’s largest mall, this is indicative that the emirate is striving to satisfy the demand from residents and the increasing number of overseas visitors. Last year, this mall had 54 million visitors – up by a very impressive 15% on 2010.

As further evidence of the boom in the retail sector, one of the older malls – Al Ghurair Centre – is currently carrying out a Dhs 2 billion expansion.

The past six years has witnessed a 60% increase in Dubai retail space and this phenomenal growth appears to be continuing unabated.

The strong performance of flydubai is another Dubai success story. Established only in July 2008 – when it ordered 50 Boeing 737-800s for US$ 3.74 billion – the company has propelled itself to become the fastest growing airline in the world. Since its first flight in June 2009, flydubai has expanded rapidly and now services nearly fifty destinations. Not bad progress in less than three years!

Further evidence of the burgeoning trade links with the US came with recent data showing that UAE imports in 2011 were at a record high of US$ 15.9 billion. With exports of only US$ 2.4 billion, the trade deficit between the two countries came to US$ 13.5 billion compared to US$ 10.7 billion in 2010.

With Emirates recently announcing a US$ 18 billion purchase of 50 Boeing 777s, Dubai is playing its part in making the UAE the single largest market for American goods in the MENA region.

The Dubai Financial Market General Index continues to confound its critics. Now trading at 1540, it is a very impressive 13.73% up since the start of the calendar year.

More welcome news on the local front with reports that Abid Al Boom is repaying Dh 1 billion he allegedly embezzled from investors six years ago. If only others would follow this move!

However, on the global front, Greece appears to be teetering on the edge of inevitable disaster and it may be better if the country ditched the euro now. If further money is poured in, then the repercussions for the rest of Europe and the world will be catastrophic.

Our immediate worries are actually nearer home and we await – with some trepidation – the unfolding events in both Iran and Syria.

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Dubai – Good News Week Two

Posted on February 11, 2012 by howesdubai

I see that former England cricket captain, Michael Atherton, has joined the long list of Poms who seem to delight in finding faults with anything associated with Dubai. Maybe he should concentrate his efforts on trying to improve the performance of the woeful team that he once led.

But in contrast to much of the world, more good economic news continues to emanate from this Gulf emirate.

Some 2011 company results have just been published with more due out in the next few days.

Dubai Islamic Bank has seen a 25% surge in profits over the year whilst bellwether stock, Emaar, had an impressive 50% jump in Q4 profits. Meanwhile Tamwheel seems to have rid itself of all its previous problems by posting a massive 400% profit improvement in Q4.

The local stock market – like many others around the world – was down in the doldrums last year but 2012 is another story. The Dubai Financial Market General Index is up 9.1% so far this year – a lot better than the FTSE 100 which has gained 5.9% over the same period.

This week has seen the conclusion of yet another successful Dubai Shopping Festival with estimates that the month long event brought in over 4 million visitors and increased retail sales by over US$ 4 billion and was a boon for the local tourist industry.

On the global front, following a foray into Facebook going public, analysts have valued the social media company in excess of US$ 95 billion.

Meanwhile it appears that two mining giants – Glencore and Xstrata – are merging with the new entity being valued at US$ 80 billion.

The conundrum is why a company with Revenue of US$ 3.8 billion and profits of US$ 1.5 billion has a valuation more than a company with Revenue of US$ 180 billion and profits of over US$ 12 billion? Hopefully this is not the start of another dot.com bubble!

As indicated in an earlier blog, it is only a matter of time before the Greek patient succumbs to its terminal financial problems and returns to trading in drachma. Nobody knows the real impact this will have on the Eurozone but it could be the start of a long hot summer of discontent across the continent.

Here we just have to be mindful of what is happening over in Iran and hope that world leaders come to their senses and take appropriate action in Syria.

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Dubai – Good News Week

Posted on January 31, 2012 by howesdubai

There is a perception in the marketplace (whatever that may be) that Dubai is again  proving its many sceptics wrong and is in a much better financial position than it was a year ago.

Only last week Dubai Holdings, owned by the Dubai government, announced that it would be repaying US$ 500 million (from its own internal cash flow), the full amount due on a bond, in February. And this after one of the dreaded rating agencies, Moody’s, had warned late last year that refinancing may be the only option available when this debt fell due.

It does seem that the authorities have got their house in order to a large extent but no doubt there will be problems along the way as Dubai tries to meet its debt obligations  of  around US$ 100 billion of which around 10% is due to mature this year.

Another promising indicator is the fact that most hotels are full. The Dubai Shopping Festival along with the onset of the exhibition season are two main drivers. The annual month-long shopping fest is expected to add Dhs 15 billion to the retailing coffers and bring in nearly four million visitors.

There is also no doubt that events in other holiday destinations – especially Tunisia, Egypt and Syria – have had a positive effect for the tourist industry here. Tourism revenue accounts for a third of Dubai’s economy and is set to contribute even more in the future.

Probably the single most cause for optimism is the positive contribution made by Emirates Airline to Dubai’s economy and its knock-on effect on the local economy.

Dubai Airport is probably the world’s fastest growing hub handling 51 million passengers in 2011. It is interesting to note that the aviation industry accounts for nearly 30% of Dubai’s GDP equal to over Dhs 80 billion and responsible for 250,000 jobs. Not one for resting on their laurels, future capital expenditure will be in the region of Dhs 30 billion. And all this at the existing airport – what about the newly planned facility, Dubai World Central, which has even bigger aspirations?

It will come as no surprise that Dubai Duty Free has become the world’s single largest airport retailer with annual sales almost topping Dhs 20 billion.

Even much maligned Dubai real estate sees signs of thawing. Evidently wealthy Iranians, Chinese and Indians are becoming more active at the top end of the market which has been further boosted by increasing numbers of exiles from the troubled regions of the area as a result of the Arab Spring.

Trade is growing particularly with India and China and there are other positive signs that recovery is taking a foothold. Not surprisingly, the Dubai economic model of ten years ago – reliant on real estate and financial services – has been replaced by more emphasis on trade and tourism.

The two clouds on the horizon, for Dubai are the Euro crisis and what will happen over the water in Iran. Time will tell what impact they will have as the emirate continues to prove the doubters wrong again.

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Why things are not so bad in Dubai!

Posted on January 23, 2012 by howesdubai

The debt to GDP (Gross Domestic Product) ratio is one of the main indicators used to measure the health of an economy. Obviously the lower the figure the better. The more services and goods produced by a country should ensure that it will be in a better position to pay off its debts.

What is currently happening is little short of mind boggling! At the end of 2011, it was reported that the US Debt Ratio went past 100% for the first time in its history with its debt having shot past US$ 15 trillion. In anyone’s language this is a huge sum with each citizen in hock to over U$ 48k.

But what is more worrying is that the USA just makes the top 20 of debtor nations with 17 European countries worse off. The usual suspects are all there and not surprisingly the Irish top the lot with a per capita debt of U$ 567k and debt to GDP ratio of 1382%.

The UK comes in at a distant number two with a ratio of 413% and a per capita debt of U$ 147k.

What is good news for us in the UAE is that the debt ratio for the country is south of 20% whilst Dubai comes in at shy of 40%.

It seems that universal growth rates are on the decline and this despite horrific forecasts this time last year, the economy is holding up well with 2011 growth at over 4% – almost double on the previous year. 2012 should see this growth pattern continue.

What will happen to property is anybody’s guess! One thing is certain – there are many other places in the world where housing markets will be a lot worse than what we have here in Dubai. Maybe the medicine taken over the past two years is finally curing the patient.

One word sums up currencies in 2011 – volatility. This year will see continued problems in Europe and do not be surprised to see the return of the drachma as the euro’s demise gains further momentum. If you have the ready cash, move it to the Turkish lira or Norwegian kroner and follow the example of the new Jamaican leader, who wishes to remove the queen as titular head of that country.

The UAE dirham – pegged to the US dollar will be a safe haven. A pity about the pitiful interest rates! (The banks however get their pound of flesh by charging exorbitant interest rates on occasions that they deem to lend to their clients).

Be wary of emerging markets especially when 2011 prices dropped over 20% in Brazil, Russia and China and 35 % in India. Maybe the market knows more than the plethora of investment advisers who extol the virtue of the BRIC economies. In comparison what’s wrong with the local Dubai market where stocks only fell by 17%?

And what about the oil?

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