What about the bounce-back?
It was probably not the best timing to announce a request for debt rescheduling by Dubai World, just on the eve of the markets’ closing for 4 days for the Eid Middle East weekend. But the world’s financial markets seem to have taken the hit in their stride so far.
The decision, however, has implications for the world economy in 2010, for some indebted economies and for the Middle East in particular. For the world economy, it highlights the fact that corporate problems tend to lag the economic cycle and many will reach the surface in 2010 and 2011 when bonds have to be rolled over or borrowing facilities renewed and the easy cash from running down inventories has been absorbed. In most Western economies, corporates have been repaying debt over the past 12 months. This will be less easy in the coming 12 months; with downward pressure on profits as inventories are no longer being run down.
In the same light finance houses and developers will come under increased pressure as the rising unemployment and slow economic growth lead to a decrease in savings and an increase in non performing loans. In parallel though, with interest rates remaining at historic lows and finance becoming slowly available, many will be temped to return to the real estate investment market for “cherry picking” given the lack of investment alternatives as the public has lost its faith in the stock market and in the investment community at large.
The bounce-back will be slow and protracted, but there will be many opportunities along the way as the two sides “compete” against each other.
Cyprus Economy
• Tourist arrivals recorded a decrease of 14% during October compared to the same month last year. Tourist arrivals from Britain were down by 19.1%, from Russia 22.6%, from Sweden 9.5%, and from Germany by 2%. Tourist arrivals from the UK, Cyprus’ biggest tourist provider, are expected to remain as low as 2009.
• The director of the Cyprus Central Bank has expressed concerns about the worsening of the country’s economic conditions which are expected to be lower from what the European Commission forecasted. The real GDP is expected to decrease by 0.7% in 2009 and remain at this level in 2010.
• According to the European Commission, Cyprus’ public deficit is expected to follow an increasing trend for the next two years. For 2009 it is expected to surpass the 3% limit. Even more alarming is the expected 5.75% of GDP which is expected to reach during 2010 and the 6% during 2011, despite of the then expected economic rehab.
Cyprus Property Market
• Antonis Loizou & Associates has recently carried out a series of informative talks to key clients and groups regarding the status of the Cyprus property market and our expectations going forward. We attach this presentation for your reference.
Global Property Market
• UK house prices rose for a seventh month in November as the labor market showed signs of improvement and the recession eased, Nationwide Building Society said. Prices rose 2.7% percent from a year earlier and are now 13% lower than at their peak in October 2007.
• London and the South East have led a strong recovery for UK house prices during the past six to eight months and average house price growth for 2009 could reach 5% by the year end. However, according to Jones Lang LaSalle there are already signs of this growth slowing and average house prices across the UK are expected to fall by 7% in 2010.
• It’s interesting to note that overseas buyers now account for 80% of London’s market. Buyers from the US, Lebanon, Oman, Korea, Libya and Ireland are among the cast of non UK players that make up the vast majority of those currently investing in real estate in central London
• Luxury-home prices in central London rose on an annual basis for the first time in 17 months as bank and hedge-fund executives bought houses and apartments in anticipation of bonuses. Values of properties costing more than 1 million pounds ($1.6 million) were 1.6% higher in November than a year earlier, the first annual increase since June 2008. Still, prices are 15 percent below their peak in March 2008.
• According to Barclays Plc individuals with more than $800,000 to invest plan to increase their property holdings because they foresee better long-term returns than from stocks and bonds. Real estate investment among wealthy individuals is set to rise to 30% of the average portfolio for the next few years from 28% now, according to the survey.
• The recent announcement of a debt restructuring by Dubai’s developer “Dubai World” came at a bad time for Middle East investors who hoped for stabilization in property prices. Investors have already seen a peak-to-trough price declines for both commercial and domestic property of at least 50 per cent.
• Greece has been rebuked for doing too little to cut its budget deficit as impatience spreads across the European Union with the chaotic Greek public finances. Commission experts estimated that the Greek deficit would be above 10 per cent of GDP this year and above 12 per cent next year as the financial turmoil takes its toll on.
• Compounding the problem is the astronomically high level of Greece’s public debt, which the Commission estimates will rise to 112.6% of GDP this year, 124.9% next year and 135.4% in 2011. Fitch credit ratings agency downgraded Greece’s debt last month. Moody’s put it under review for a possible downgrade since they doubt the country’s ability to deal with the public debt and inherently achieve growth in the decade to come.
• All 27 EU countries except Bulgaria are expected to have budget deficits next year in excess of 3% of gross domestic product, the limit under EU rules for normal times. The Commission is expected to allow France and Spain one more year – until 2013 – to reduce their deficits to below 3 per cent. The UK will also be granted one more year, until 2014/15 fiscal year.
• In the USA, unemployment continues to increase reaching the symbolic level of 10.2%, the highest since the April of 1983. For October, 190,000 jobs more than expected were suspended.
Antonis Loizou, FRICS 22/11/2009
