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January 2010

News Letter - 9th January 2010

The Burj Dubai, the world’s highest building at 828m, was opened on the January 4th to great fanfare and the name was promptly changed to Burj Khalifa. In case you are unaware Khalifa is the name of the President of the UAE and ruler of Abu Dhabi – which would indicate Abu Dhabi is probably the major share holders or even the outright owners of this property now! Could be just a very nice gesture form Sh Mo to the Big Man.... The cost of the building is reputed to be $1.5Bn. The Dubai debt mountain was forgotten about for a brief period but will become a concern again in May when further payments of the $80 Bn + fall due. Speculation runs rife as to just how much of Dubai Inc is now controlled by Abu Dhabi. We have probably witnessed the start of the real UAE where maybe the other Emirates will eventually become parishes and Abu Dhabi becomes the true Capital City. So many outsiders still view Dubai thus with so many others having no idea where Abu Dhabi is. Is`nt it somewhere in Saudi Arabia?? It is rumoured that many of the Dubai ‘flagship’ enterprises are now majority owned by Abu Dhabi, including Emirates Airline. We will continue to watch with interest what develops, It is of note that Dubai has launched a ‘shake up’ of its economic leadership – this was thought to have been prompted by Abu Dhabi – the eventual ‘paymasters’ in many cases of the Dubai debt mountain.

A review of 2009 revealed that in early 2009 over half the residential and commercial property projects were on hold or cancelled due to lack of funding. Everyone still awaits the official RERA listing of what is and what isn`t. The last time I went to enquire about the long awaited list (November last), was promptly informed that...... Quote :no project in Dubai has been cancelled"  Even the QE2 was rumoured to be up for sale. What is known is that any proposed renovations of this vessel are not going ahead and probably never will. Real estate values continue to plummet with a fall in the region of 40% in valve and in rents over the twelve month period of 2009. There is expected to be another 15% to 20% fall during 2010. The market is over supplied with more properties to join this surplus in 2010.

Despite the economic down turn low cost airline ‘Flydubai” was launched in mid year and Dubai Duty Free increased sales by 3.76% in 2009 compared to the 2008 figures. Although there has been a downturn in flight travel in the world generally the Middle East has not suffered this fate with travel in the region advancing in 2009 compared to 2008. Thank Allah for our brothers and sisters from the sub-continent.

Because of the debt uncertainty stocks plummeted after the Eid Holidays – this was triggered by the announcement just prior to the long holiday period in late November of the debt problems of Nakeel – bad timing of the announcement would be an under-statement! In the mean time Dubai Ports World (DP World) made an on time payment on its $1.5Bn sukuk bond issue that is due in 2017. DP World is part of the Dubai World group of companies but is not involved in the property sector which is in serious financial trouble.

The Dubai market has followed a ‘roller coaster’ ride over the past few weeks, gaining 3 to 4% on some days followed by profit taking the next day resulting in similar losses. For instance just prior the Burj opening on January 4th the DFM advanced 3.44% to 1865 leading all the Gulf markets; however by January 6th the DFM was back at 1,817 after profit taking. That said the DFM advanced approx 10% over the year 2009 compared with the closing level at the end of 2008. Dubai GDP is expected to grow by 2.4% in 2010 – according to Dubai Chamber of Commerce? This figure is doubted by many and growth is expected to be positive but much lower than 2.4% The UAE minister of Economy indicated they are working on a national plan to assist small to medium businesses. These businesses make up the largest proportion of the UAE economy. They are again to look at the bankruptcy laws so as to ensure more security for such businesses in the UAE. Don’t forget bounced cheques in this part of the world are still considered a criminal offence with automatic gaol sentences.

Hotel occupancy in UAE fell by 9% in November and revenue plummeted by 28% with occupancy rates of 75%. The hotel industry claims the revenue drop is due to highly discounted prices. While prices are discounted they are not discounted enough since the prices are being compared with those prior to the ‘bubble burst’ which were highly inflated with greedy hoteliers cashing in on the boom. It was known then in 2007 and 2008 that on special holidays AED 1,000/- rooms ($260) at city hotels would go for $1,000 per night for a person booking ‘’off the street’’ It is generally expected the rates will fall further before bottoming out.

On December 31st a consortium of UAE based Chinese and South Korean Companies won a tender worth $10bn for development of Turkmenistan’s South Eloten’s gas field. As of January 3rd a consumer survey indicated confidence in the UAE and a general expectation for 2010 of an economic recovery in the last quarter. The study indicated the vast majority of respondents had been affected by the financial crisis with 70% of respondents reporting spending power cuts by an average of 26%. However this could be a matter of people just ‘talking the market up’ because of the prolonged downturn and job loss fear, particularly as serious job losses continue. Saudi Arabia reported the least impacted of the Gulf States by the present crisis.

Crude oil output rose in December, with a further eroding of OPEC compliance with the agreed quotas. Experts do not expect compliance to improve as the countries feel they can pump out more oil without denting prices. The average price of crude during 2009 was approx $12 per barrel more than expected at the beginning of 2009 so the oil producing states have fared better than expected.

That’s it for this issue of the Carmania newsletter. Now that the “festive season” is over we will see what develops and keep our readership informed to the best of our ability. In the meantime we extend our best wishes for a successful and prosperous 2010 to all our readers