Enterprise explains

The crucial role the Strait of Hormuz plays in the flow of crude oil from the region has taken center stage since Israel first attacked Iran earlier this month. With the possibility of the closure growing very real this week, after Iran’s parliament reportedly voted for its closure as retaliation against the US and Israel following the US’ attack on Iran’s nuclear sites, we take a look at the UAE’s alternatives for oil exports — and how practical they would be in the event of the strait’s closure. (** Tap or click the headline above to read this story with all of the links to our background and outside sources.)DISCLAIMER- Even before US president Donald Trump announced a ceasefire between Iran and Israel, the consensus among analysts was that the closure of the strait would be an unlikely scenario, as it would put Iran in a difficult position with China, which is a key Iranian ally and receives most of its oil through the strait. By the numbers: About 30% of the world’s daily oil supply and 20% of global LNG trade pass through the strait. The UAE moves about 1.5 mn bbl/d out of its 2.8 mn bb/d exports through the strait, Mees reported.The UAE currently only has one option for bypassing the strait: The Adcop — or the Habshan-Fujairah pipeline — connects Adnoc’s Habshan crude oil processing plant in Abu Dhabi with the nation’s Fujairah export terminal on the Indian Ocean, bypassing the Strait, Mees reported. The pipeline has a capacity of 1.8 mn bbl/d — about 67% of the 2.85 mn bbl/d of crude oil exported from the Emirates this year. The catch: The pipeline only links to Adnoc’s Murban onshore fields, leaving offshore-sourced crude reliant on the strait for market access. This means that about half of the UAE’s crude exports — 1.5 mn bb/d of offshore production — wouldn’t be up for diversion through Adcop, which would force the UAE to up its production from the onshore Murban facilities.The good news is: The UAE is working on new alternatives. Adnoc is developing a USD 3 bn 1.5 mn bbl/d crude oil pipeline to link up its Ruwais’ Jebel Dhanna terminal with Fujiairah, but it won’t be operational until 2027. The Emirates would see its bypassing capacity almost doubled when the project is operational.Any measure to restrict movement in the Strait of Hormuz would “paralyze the [Arabian] gulf and impact the entire world,” Iraqi economist Hilal al-Taan told Shafaq News. Notable ports like UAE’s Jebel Ali, along with oil-reliant nations Iraq, Bahrain, and Kuwait will incur catastrophic financial losses, al-Taan said. While the UAE and KSA have alternative routes, Iraq, Kuwait, Qatar and Bahrain are wholly dependent on the strait for their energy exports, leaving them as the most vulnerable for the closure. The strait’s closure would also likely shock oil markets, with Bloomberg analysts crude estimating a rise in oil prices to USD 130 per barrel in that scenario.

Last year, the Central Bank of the UAE (CBUAE) issued open finance regulations for the country, with the rules setting up a framework to license and supervise Open Finance operations in the UAE’s financial sector. Last week saw the first fintech — Pay10 — go live under the framework, allowing it to launch payment initiation services.Enterprise had a chat with Executive Vice President and Head of Digital for Mashreq’s Retail Banking Group Corey Thompson to explain what open finance is, what the regulations mean, and how ready major institutions in the UAE are for the framework rollout.Open finance is essentially the sharing of financial data and services by financial institutions with third-party providers (also known as TPPs). These third parties can be other banks, fintech companies, or even non-financial entities.While the concept of open finance is broad, in the UAE, it’s being implemented through a specific regulatory framework. This framework enables financial institutions to share data and services with other financial or non-financial institutions that have been licensed under the new Open Finance regulations.Many people are familiar with “open banking,” which has been present in Europe for some time. Open finance is an extension of this concept. Open banking was limited to the sharing of ‘banking’ data and services, while open finance encompasses a wider range of financial institutions, including insurers, wealth managers, and exchange houses.In practice, what does that mean? Open finance involves two main activities — data sharing and service initiation. Data sharing includes sharing transaction histories, which can be used for various purposes like aggregating accounts across banking relationships, generating insights on spending patterns to help customers save, supporting credit decisions, or identifying financial needs for customers. On the service initiation side, this is primarily focused on payments and allows third-party providers to initiate payments on behalf of a customer, either as a one-off transaction or on a recurring basis.What are the benefits of open finance? The Central Bank is introducing open finance to drive innovation. By enabling the sharing of financial data and services, it aims to facilitate the creation of new financial products and services by banks, non-banks, fintech companies, and other institutions.Customers can benefit through greater financial transparency, simplicity and reduced friction. Customers can view their accounts across multiple banks in a single app, eliminating the need to log in to each bank separately. Businesses can also use open finance to receive payments from customers without requiring them to use a credit card. For example, a subscription service could directly debit a customer’s account. This could also be used to streamline payments to merchants.Open finance is expected to foster a broader range of innovative financial services and products, and increase competition in the market, as money becomes more mobile. While data privacy is often a concern when the question of data sharing comes into play, open finance is tightly regulated to address data privacy risks. A common misconception is that open finance allows fintech companies or aggregators to freely access customer data, which is not the case, Thompson says. “A fundamental principle of open finance is customer consent. Customers must explicitly authorize a third-party provider (TPP) to access their data or initiate services on their behalf.” This consent is provided to the customers’ bank and must be specific, time-bound, and scenario-specific. “For instance, a customer would need to grant specific permission for a TPP to access their data from a particular bank for a defined purposeand duration,” he explains.In the UAE, TPPs must be licensed under the Central Bank’s open finance regulations. This is a key difference from open banking in Europe, where such licensing is not always required. This licensing regime ensures that TPPs adhere to strict data privacy and security standards. They must demonstrate this adherence to obtain a license and will be supervised by the Central Bank, to ensure ongoing compliance.Some players in the ecosystem are better-positioned than others to adapt to the new regulations. “In the case of Mashreq, we’re already well progressed with the modernization of our tech stack and some aspects of open finance converge well with our existing digital roadmap. There is extra work for us to do — it’s not trivial. But we’re also looking at this as an opportunity to improve the overall customer experience, and performance for the bank holistically,” Thompson says.“As a bank, Mashreq is regulated to be a ‘supplier’ to open finance — making data sharing and payment services available for Open Finance — but we also could participate as a TPP, on the other side of open finance,” he said. “So, a question that we’re looking at is: If we were a TPP, how can we leverage open finance to complement Mashreq’s existing digital capabilities, like advanced analytics and AI, to deliver a superior experience for our customers.”

Where Dubai’s red-hot property market is heading, according to Mashreq’s Zain Qureshi: We’re nearly two thirds into the year, and speculations around where the property market in Dubai is going have yet to abate. The off-plan market has been red hot, as have rentals. And it’s not very different over in other emirates like Abu Dhabi, Sharjah, and Ras Al Khaimah, where investors — many foreign — have been pouring their funds. We spoke with Mashreq’s global head of real estate finance and advisory, Zain Qureshi, to gauge what demand has looked like over the past eight months, what he expects for prices through to the end of the year and early next year, and a lot more. Price growth over the past eight months has “exceeded” Qureshi’s expectations, he tells us. The momentum from last year has continued, with off-plan sales thriving over the past six months in particular, he added. Off-plan sales in Dubai alone have drawn in some AED 103.8 bn — accounting for a third of transactions during the period, Qureshi said. Safety, regulatory openness and investor-friendliness have all boosted demand: The momentum has been driven mostly by a surge in demand post-covid for the golden visa, the UAE’s reputation as one of the safest countries in the world, and its ease of doing business, Qureshi explained. Luxury buys are still a major attraction: The country’s plethora of luxury offerings has also drawn plenty of high net worth individuals in, which can be seen in the increase in demand for luxury properties in Dubai and Abu Dhabi. Luxury and uber luxury properties currently account for some 12-15% of the market, Qureshi said. This is mainly because even though they’re luxury, they’re “affordable” in the eyes of foreign investors when compared to counterparts in cities like New York, London, and Hong Kong, Qureshi explained. Not only is much of the market USD-denominated, returns on investment in the market range between 5-9%, he explained. We’re seeing spillover in rentals to the northern emirates: Rental increases have pushed some residents to the northern emirates, which have seen an increase in demand as of late, he added. REMEMBER- Annual growth rates in Dubai’s rental market slowed to single digits in 2Q 2024, with villa rental rates growing 4% y-o-y and apartments at 8% y-o-y, property management firm Asteco said recently. During the full 1H, CBRE estimates rents to have increased around 21% y-o-y. Average residential prices in Dubai jumped 21.3% y-o-y in 1H 2024, with apartment prices increasing by 20.7% y-o-y, and villa prices increasing by 24.3% y-o-y. There’s also spillover on the commercial side: Dubai International Financial Center has seen a substantial increase in demand for grade A office space, which has caused a spillover into Abu Dhabi Global Market, Qureshi said. Limited supply in the industrial market in Dubai has also led to a certain degree of spillover in demand to more accessible areas in the northern emirates, he added. Still, a fair share of land has been snapped up by “top-tier developers” for industrial development this year, he said. The supply gap won’t let up soon: “The supply crunch is expected to remain in the short to mid term, with an expected 261k of new homes due by 2029, which equates to 43.5k new units each year for the next six years,” Qureshi said, adding that he expects this supply to be absorbed in the market. Despite the supply increase, a slowdown in sales and price growth could take place in certain pockets of the city as part of a 5-10% price correction cycle sometime in the next 18 months, he noted, adding that geopolitical tensions could potentially affect the market. Expected interest rate cuts later this year will also drive end-user demand as installments become more affordable, with buyers potentially shifting towards mortgage as the preferred payment model, he added. LOOKING FURTHER AHEAD- Expect to see a lot of demand for Dubai South: “We have seen an increase in development activities, as well as sales transactions in Dubai South,” Qureshi said, adding that the expansion of Al Maktoum Airport should improve the infrastructure and connectivity around the area and drive more demand for residential and commercial properties.

Enterprise Explains: Behind rising property prices + the outlook for the market in 2024. Data out over the past few weeks has pointed to a record increase in real estate prices in the UAE in 2023, with indications property prices will continue to appreciate in 2024 — albeit potentially at a slightly slower pace. The IMF estimates that real estate prices rose at the highest levels globally last year, with a 10.4% y-o-y surge, while others have estimated an even higher 15-18% surge in Dubai alone. By the numbers: The UAE ranks sixth globally in estate price increases since pre-pandemic levels, rising 14.1% and trailing Portugal, the US, Japan, and the Netherlands, according to the IMF. Dubai real estate’s residential real price growth rates surged higher than any other major city in 2Q 2023, including Miami, Tokyo, and New York, according to the 2023 UBS Global Real Estate Bubble Index. Sales also hit a record high in Dubai: Dubai’s real estate sales neared AED 401 bn for the first time ever last year, with a record 129k sales recorded, up 32% y-o-y, Gulf Today reports, citing a review by real estate brokerage W Capital. The rental market is no different: Rentals in the emirate have risen some 42% since 2020, Bloomberg reports, citing data from property advisory firm CBRE Group.Soaring prices owe a lot to an influx of foreign wealth: Russian business leaders turned to Dubai after the outbreak of war in Ukraine, making up nearly 15% of the market, the Telegraph reports. Ultra-high-net-worth Russian individuals looked to Dubai due to its lack of Western sanctions, low taxes, favorable positioning for remote work, and residency programs. Middle-class Russians did the same, fueling competition for real estate at multiple price points.And it’s not just Russians: Half of Dubai’s property market consists of overseas buyers, including crypto m’naires and wealthy individuals from Europe and India, reports The Telegraph. Chinese buyers also flocked to Dubai to safeguard their investments amidst geopolitical tensions, Sergei Rakov, head of technology at real estate agency Allsopp & Allsopp said. A lot of it was driven by luxury buys: These buyers tended to favor Dubai’s luxury segments, Rakov said. Wealthy buyers spent approximately USD 2.27 bn on luxury homes in Dubai in 2023, with the most expensive transaction (a five-bedroom apartment in Palm Jumeirah’s Como Residences) totaling USD 136.2 mn, reports Bloomberg. The number of homes purchased at USD 25 mn or more doubled y-o-y to reach 56 luxurious homes sold compared to 28 in 2022. Palm Jumeirah Island and Jumeirah Bay Island pooled the most global wealth. Dubai estates are expected to get slightly more expensive in 2024, though at a slower pace than last year. S&P Global Ratings forecasts a 5-7% jump in Dubai property prices this year, down from 15% in 2023. The ratings agency also sees a risk of a cyclical slowdown, suggesting we could see prices “decelerate and potentially slightly reverse over the next 12-18 months, with price declines not exceeding 5%-10%.”The past two months have shown signs of a slowdown: Morgan Stanley sees “continued tailwinds” for the market and thinks the market this year will be “less of a boom than 2023,” Bloomberg reports. Despite rents continuing to increase, the rate of the increase is cooling in some popular neighborhoods, with average rents rising 19.2% in November, slightly slower than October’s 19.7%, according to CBRE data picked up by Bloomberg. Purchasing power is stretched thin:Buyers in Dubai are turning to smaller, one-bedroom apartments and studios amid global economic uncertainty, Bloomberg quotes Tatjana Lescova, S&P’s associate director of corporate ratings, as saying. Lescova, who covers three Emirati developers with a combined market share of some 50%, pointed to a downsizing trend late last year. “You have the high net worth individuals who can afford multiple and multi-mn properties, but the bulk of the market is coming to a certain limit in terms of purchasing power as property becomes expensive,” Lescova said.Oversaturation + less demand will give way to lower prices: Property developers are already lowering prices to “reel in hesitant buyers,” Lescova said. This comes as sales of houses are expected to jump to 40k in Dubai this year, compared to historical figures of 15-30k homes sold.Developers will shift their focus to earnings growth as they look to avoid history repeating itself with the boom-and-bust cycle in real estate in Dubai, Bloomberg cites Morgan Stanley as saying. Despite the expected slowdown, prices in Dubai are considered to be “fairly valued,” with consistent income growth and rental growth surpassing owner-occupied price growth,according to UBS.