Iran rial plunges to new lows as US sanctions loom

The currency has been sliding for months because of a weak economy. (File photo: Reuters)
Updated 24 June 2018
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Iran rial plunges to new lows as US sanctions loom

  • The dollar was being offered for as much as 87,000 rials, compared to around 75,500 on Thursday
  • The currency has been sliding for months because of a weak economy

DUBAI: The Iranian rial plunged to a record low against the US dollar on the unofficial market on Sunday, continuing its slide amid fears of returning US sanctions after President Donald Trump in May withdrew from a deal on Tehran’s nuclear program.
The dollar was being offered for as much as 87,000 rials, compared to around 75,500 on Thursday, the last trading day before Iran’s weekend, according to foreign exchange website Bonbast.com, which tracks the unofficial market.
Iran’s semi-official news agency ISNA said the dollar had climbed to 87,000 rials on Sunday from about 74,000 before the weekend on the black market, and several Iranian websites carried similar reports.
The currency has been sliding for months because of a weak economy, financial difficulties at local banks and heavy demand for dollars among Iranians who fear the pullout by Washington from the nuclear deal and renewed US sanctions against Tehran could shrink the country’s exports of oil and other goods.
The fall of the national currency has provoked a public outcry over the quick rise of prices of imported consumer goods.
Merchants at the mobile phone shopping centers Aladdin and Charsou in central Tehran protested against the rapid depreciation of the rial by shutting down their shops on Sunday, the semi-official news agency Fars reported.
A video posted on social media showed protesters marching and chanting “strike, strike!” The footage could not be authenticated independently by Reuters.
Hours later, Information and Communications Technology Minister Mohammad Javad Azari-Jahromi said on Twitter that he visited the protesting merchants.
“I will try to help provide hard currency for (mobile) equipment (imports),” Azari-Jahromi wrote, adding: “The merchants’ activity has now gone back to normal.”
Some of the US sanctions against Iran take effect after a 90-day “wind-down” period ending on Aug. 6, and the rest, most notably on the petroleum sector, after a 180-day “wind-down” period ending on Nov. 4.
The rial has weakened from around 65,000 rials just before Trump’s announcement of the US withdrawal in early May, and from 42,890 at the end of last year — a freefall that threatens to boost inflation, hurt living standards and reduce the ability of Iranians to travel abroad.
In an effort to halt the slide, Iranian authorities announced in April they were unifying the dollar’s official and black market exchange rates at a single level of 42,000, and banning any trade at other rates under the threat of arrest.
But this step has failed to stamp out the unofficial market because authorities have been supplying much less hard currency through official channels than consumers are demanding. Free market trade simply went underground, dealers said.


Dubai real estate market recovery to be seen as of 2022: S&P

Updated 20 February 2019
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Dubai real estate market recovery to be seen as of 2022: S&P

  • The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate
  • S&P was generally comfortable with the credit ratings of the emirate’s banking system

DUBAI: S&P Global, the ratings agency, painted a grim picture for the real estate sector in Dubai, with a meaningful recovery in property prices expected only after 2022.
At a presentation to journalists in the Dubai International Financial Center, S&P analyst Sapna Jagtiani said that under the firm’s “base case scenario,” the Dubai real estate market would fall by between 5 and 10 percent this year, roughly the same as the fall in 2018, which would bring property prices to the levels seen at the bottom of the last cycle in 2010, in the aftermath of the global financial crisis.
“On the real estate side we continue to have a very grim view of the market. While we expect prices to broadly stabilize in 2020, we don’t see a meaningful recovery in 2021. Relative to the previous recovery cycle, we believe it will take longer time for prices to display a meaningful recovery,” she said.
S&P’s verdict adds to several recent pessimistic assessments of the Dubai real estate market. Jagtiani said that conditions in the other big UAE property market, in Abu Dhabi, were not as negative, because “Abu Dhabi never did ramp up as much in 2014 and 2015 as Dubai.” S&P does not rate developers in the capital.
She added that a “stress scenario” could arise if government and royal family related developers — such as Emaar Properties, Meraas, Dubai Properties and Nakheel — which have attractive land banks and economies of scale, continue to launch new developments.
“In such a scenario, we think residential real estate prices could decline by 10-15 percent in 2019 and a further 5-10 percent in 2020. In this case, we expect no upside for Dubai residential real estate prices in 2021, as we expect it will take a while for the market to absorb oversupply,” she said.
S&P recently downgraded Damac, one of the biggest Dubai-based developers, to BB- rating, on weak market prospects.
However, Jagtiani said that, despite the “significant oversupply” from existing projects, several factors should held stabilize the market: Few, if any, major product launches; improved affordability and “bargain hunting” by bulk buyers; and a resurgence of Asian, especially Chinese, investor interest in the market.
Jagtiani also said that government measures such as new ownership and visa regulations and reduction in government fees could help prevent prices falling more sharply, as well as “increased economic activity related to Dubai Expo 2020, which is expected to attract about 25 million visitors to the emirate.”
The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate. “In our view, credit conditions deteriorated in Dubai in 2018, reducing the government’s ability to provide extraordinary financial support to its government related entities (GREs) if needed,” S&P said in a report. “The negative outlook on Dubai Electricity and Water
Authority (DEWA) partly reflects our concern that a real estate downturn beyond our base case could out increased pressure on government finances,” the report said.
It pointed out that about 70 percent of government revenues come from non-tax sources, including land transfer and mortgage registration fees, as well as charges for housing and municipality liabilities, as well as dividends from real estate developers it controls, like Emaar and Nakheel.
S&P was generally comfortable with the credit ratings of the emirate’s banking system, which has an estimated 20 percent exposure to real estate. “Banks in the UAE tend to generally display a good level of profitability and capitalization, giving them a good margin to absorb a moderate increase in risks,” the report said.