“Home resales leaped in October, rising far more than expected as a fat tax credit offset fears about joblessness. Sales of existing homes increased by 10.1% to a 6.10 million annual rate from 5.54 million in September, the National Association of Realtors said Monday. Inventories kept shrinking. Prices fell, but the NAR said the decline was the smallest in more than a year. The 6.10-million rate was the highest since February 2007. Economists surveyed by Dow Jones Newswires expected a 2.3% increase in sales during October, to a rate of 5.70 million.
"Many buyers have been rushing to beat the deadline for the first-time buyer tax credit," NAR economist Lawrence Yun said. Aside from the tax credit, low prices and mortgage rates have drawn in buyers, concerned as the U.S. unemployment rate climbed in October to 10.2%. The NAR reported the median price for an existing home last month was $173,100, down 7.1% from $186,400 in October 2008. The average 30-year mortgage rate was 4.95% in October, down from 5.06% in September, Freddie Mac data showed.
September sales rose 8.8% to 5.54 million; the NAR originally reported sales for that month jumped 9.4%, to 5.57 million. Existing-home sales, year over year, were 23.5% higher last month than the level in October 2008. The October surge in sales follows a very disappointing housing sector report last week showing U.S. construction tumbled in October to the lowest point in six months. A reason for the sharp, unexpected drop might have involved uncertainty over a government tax incentive for home buyers that had been due to lapse in November.
Congress extended the tax credit earlier this month through April, a move seen fueling sales and construction into the new year. Inventories of previously owned homes decreased by 3.7% at the end of October to 3.57 million available for sale. That represented a 7.0-month supply at the current sales pace, compared to 8.0 in September. Regionally, sales in October compared to September rose 11.6% in the Northeast, 14.4% in the Midwest, 12.7% in the South, and 1.6% in the West. Of the 6.10 million in overall U.S. sales, 30% were distressed, which includes foreclosures. That compares to a range of 45% to 50% in months during late 2008 and early 2009.” – Wall Street Journal, 24 November 2009
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Wednesday, November 25, 2009
Where is South Africa going in the next few years?
By Cees Bruggemans, Chief Economist FNB
25 November 2009
Remember 1978, 1986, 1999?
The first year of economic recovery can be frigid affairs. Too many people are still experiencing hardship (the unemployed, the overindebted, the asset-impaired, the underpaid, the cash-flow-constrained, the otherwise-challenged) while the rest is inclined to be backward-looking, daily remembering the disaster that overtook them and clobbered them hard only so very recently.
It was the anxiety of the Soweto uprising and the recession that accompanied it in the mid-1970s that for long cast its spell, preventing spirits from lifting.
Just so the Perfect Storm of 1985 when our foreign debt was pulled, prime reached 25%, the Rand halved, and the Rubicon speech made South African history. Thereafter humpty-dumpty felt quite broken in spirit.
The Asian Contagion of 1998 also swept ashore here, ambushing the Rand and the SARB, whose answer to anything big and bad appears to be prime 25%, in the process putting an awful lot of people once again under water, burning many deeply.
And such searing sensations tend to linger.
For the better part of 1979 it felt no better than the last year of recession (1977) and the first year of supposed recovery (1978).
And 1987, 1988 and 1989 were really one long depression, marked by political death struggles and minimal economic recovery, eventually encountering the political rapids of 1990-1993 and the deep unease and prolonged recession that then took hold.
As for 2000 through 2003, it felt we were never going to escape mediocrity again, achieving at best 2%-3% GDP growth, with fixed investment staying stuck in a rut, and the consumer dull.
Only 1994 stood out as different, but then the occasion gave rise to remarkable hope, lifting all spirits in ways probably never seen before in this country (and sadly yet to be encountered again since it was lost in the hit of the late 1990s, after which Mbeki ruled and political correctness turned things deeply sour).
So what is all this supposed to mean? That all normal economic recoveries in this country are always destined to be frigidly loveless, mired in lingering despair, for years and years?
But then, you will notice, these deep biting Russian winters of discontent never stayed a ‘permanent’ fixture. Something always turned up, a new love perhaps that had the knack of warming things up.
And then, magic of magic moments, at some critical point someone or something switched all the lights back on (it certainly wasn’t Eskom) and it was party time again, with all the loveless frigidity and backward-looking preoccupations completely forgotten in a rush to the head that in nearly every instance was memorial indeed (1980-1983 especially, and of course 2004-2007 as GDP averaged 5.5% as we now officially know, having long done so unofficially).
After a huge disappointment and much pain we apparently take time warming up or being warmed up. No shortage of willing candidates, though, as the SARB usually tempts us with many love bites as it attractively reduces interest rates in the hope, no doubt, that we will bite.
But once bitten, twice shy, by the looks of it over and over and over again (but that, too, sounds like a familiar refrain).
So what does this have to do with 2009 and 2010 and probably 2011 as well while taking a rain cheque on 2012?
Well, just about everything. You may have noticed we exited recession as of July-August 2009? You didn’t? Then you haven’t been speaking to your favourite motor dealer, furniture salesman, real estate agent or banker. I have. They are all claiming things turned up about then.
From horrific depths, of course. Don’t get me wrong. Give a hypochondriac a pinkie and he will grab the whole hand, drowning man that he is. But recovery has to start somewhere, and the first positive number, no matter at what dismal depths of activity, is that first step back on the ladder to happiness and all that.
Meanwhile what resides between the ears is quite a different matter, at least going by past appearances, and current headlines. The way of heralding the new recovery dawn is apparently by moaning that it is going to be a hard, long slog.
Yes, we know that the journey will be long and arduous, but why can’t it be with a spring in one’s step? It is because times remain hard for many, and yes, too many remember vividly what laid them low only very recently, with many unresolved anxieties about these problems not having been quite resolved yet. For the hardship could still come back in waves, overcoming us again (and again) and known as double dips and W-shaped recoveries refusing to get off the floor.
Modern economies actually have proved far more resilient than that, boosted by active policy measures and natural recuperation powers. But psychologically such starts remain for long very unhappy periods, just like a Siberian winter which towards the end feels it will go on forever (not unlike the darkest night even as the dawn is about to show her presence).
So will this time be different?
We don’t have a unique political experience and Madiba on tap to cook up a positive storm of emotions. Instead at every turn we are invited to look into Julius Malema’s mug shot. Not quite the same thing, now is it? Even if Julius is a great hit where it matters most to him and the leadership, in the townships.
But surely we have something better up our sleeve this time? For sports-mad South Africa the world cup soccer in mid-2010 is ready made to lift all spirits?
It will be, but perhaps not quite, given the long billing that the whole thing is probably already fully absorbed in the national psychic (though a month of football awaits that should soften even the hardest sentiments).
But that pleasing touch has to overcome something that was truly awesome, the biggest financial crash ever, Eskom putting out the lights, Julius rearranging the political furniture and the Greatest Recession since the Great Depression (at least in the West which also touched us deeply, going by daily appearances).
That’s an emotive cocktail that reminds of the late seventies, the mid eighties and the late 1990s. Man, this sense of the world ending, being hit by a truck, connecting with the canvas and feeling you will never get up again (aside of watching a bit of good soccer while in deep convalescence, of course).
Feeling sorry for oneself is an old habit, especially after a big hit, and this one couldn’t have been bigger in its unnerving, sudden, catastrophic impact.
But the historic record shows clearly that after these episodic stays in the fridge, something tends to turn up that starts to warm the cockles of our hearth, even if initially we don’t quite catch on that the weather is changing.
Asset prices start to rise, with stock market but also property having a fine nose for change in the air, sniffing its presence and starting the process of repositioning.
Yet most of us tend to be doff after ten rounds with painful depression, not seeing the lightening dawn until it suddenly bursts upon us. As if someone throws a switch, and the wintry landscape overnight makes way for late spring and early summer.
There are parts of the world where the seasonal changes are that abrupt. And I notice in our economy similar symptoms, especially among households (despite early birds) and usually with a considerable lag also in business (despite the ongoing robustness of so many enterprising entrepreneurs).
In the closing moments of 1979, and as January 1980 opened with a record $850 gold price (Russia was belligerently entering Afghanistan), there was such a moment when our collective psychological switch was finally thrown (a full 25 months after recession ended).
And sometime in the spring of 2003, a full 50 months after that recession ended, the same thing happened.
After 1985 the magic moment never happened (we had some unfinished political business to complete first while being put on a starvation diet).
And after 1993 it took exactly one night (28 April 1994) to throw the switch. But I will take the liberty of claiming that it was really the super permafrost finally melting, 100 months after the horror that was 1985.
This is quite a choice, between 25, 50 and 100 months of post-natal depression before welcoming the new dawn.
In what category will 2009-2012 fall?
Well, first things first. Though the horrific experience only so recently left behind is still fresh in the memory, with Eskom and Julius apparently doing their best to remain in our daily consciousness, one should ask whether someone or something has come into our presence that is actually gently working us over, to the point of asking when this realization will finally dawn?
And yes, there is, and it probably will, shortly.
Gentle Ben Bernanke over at the Fed sure has the golden touch, with his bond buying and zero interest rates and seemingly wanting to go on forever and ever.
Our equity prices have responded joyfully, up 50% so far this year from their trough, even if we underperform our better peers by a factor of two (China, Brazil).
Then there is gold, setting new records as it approaches $1200, with breakout potential to the upside as long as Gentle Ben keeps it up. Even platinum playing catch up again after halving early last year from record dizzy heights. And house prices having bottomed and rising now. Ask any estate agent (anytime).
Something is warming us up, our economy is starting to rise again, even if most of us derisively insist on focusing on what matters most, the present and recent pain, thank you very much.
So our collective switch hasn’t been thrown quite yet. But the moment is coming. And I don’t think it will take another 25-100 months. Nine will do this time, thank you, just in time for the soccer final (especially if your favourite African team were to be there).
Let the fun begin. But first some more serious despair this summer as we contemplate the wreckage that was 2008 and 2009. Wow, it has been bad, not so?
Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics
25 November 2009
Remember 1978, 1986, 1999?
The first year of economic recovery can be frigid affairs. Too many people are still experiencing hardship (the unemployed, the overindebted, the asset-impaired, the underpaid, the cash-flow-constrained, the otherwise-challenged) while the rest is inclined to be backward-looking, daily remembering the disaster that overtook them and clobbered them hard only so very recently.
It was the anxiety of the Soweto uprising and the recession that accompanied it in the mid-1970s that for long cast its spell, preventing spirits from lifting.
Just so the Perfect Storm of 1985 when our foreign debt was pulled, prime reached 25%, the Rand halved, and the Rubicon speech made South African history. Thereafter humpty-dumpty felt quite broken in spirit.
The Asian Contagion of 1998 also swept ashore here, ambushing the Rand and the SARB, whose answer to anything big and bad appears to be prime 25%, in the process putting an awful lot of people once again under water, burning many deeply.
And such searing sensations tend to linger.
For the better part of 1979 it felt no better than the last year of recession (1977) and the first year of supposed recovery (1978).
And 1987, 1988 and 1989 were really one long depression, marked by political death struggles and minimal economic recovery, eventually encountering the political rapids of 1990-1993 and the deep unease and prolonged recession that then took hold.
As for 2000 through 2003, it felt we were never going to escape mediocrity again, achieving at best 2%-3% GDP growth, with fixed investment staying stuck in a rut, and the consumer dull.
Only 1994 stood out as different, but then the occasion gave rise to remarkable hope, lifting all spirits in ways probably never seen before in this country (and sadly yet to be encountered again since it was lost in the hit of the late 1990s, after which Mbeki ruled and political correctness turned things deeply sour).
So what is all this supposed to mean? That all normal economic recoveries in this country are always destined to be frigidly loveless, mired in lingering despair, for years and years?
But then, you will notice, these deep biting Russian winters of discontent never stayed a ‘permanent’ fixture. Something always turned up, a new love perhaps that had the knack of warming things up.
And then, magic of magic moments, at some critical point someone or something switched all the lights back on (it certainly wasn’t Eskom) and it was party time again, with all the loveless frigidity and backward-looking preoccupations completely forgotten in a rush to the head that in nearly every instance was memorial indeed (1980-1983 especially, and of course 2004-2007 as GDP averaged 5.5% as we now officially know, having long done so unofficially).
After a huge disappointment and much pain we apparently take time warming up or being warmed up. No shortage of willing candidates, though, as the SARB usually tempts us with many love bites as it attractively reduces interest rates in the hope, no doubt, that we will bite.
But once bitten, twice shy, by the looks of it over and over and over again (but that, too, sounds like a familiar refrain).
So what does this have to do with 2009 and 2010 and probably 2011 as well while taking a rain cheque on 2012?
Well, just about everything. You may have noticed we exited recession as of July-August 2009? You didn’t? Then you haven’t been speaking to your favourite motor dealer, furniture salesman, real estate agent or banker. I have. They are all claiming things turned up about then.
From horrific depths, of course. Don’t get me wrong. Give a hypochondriac a pinkie and he will grab the whole hand, drowning man that he is. But recovery has to start somewhere, and the first positive number, no matter at what dismal depths of activity, is that first step back on the ladder to happiness and all that.
Meanwhile what resides between the ears is quite a different matter, at least going by past appearances, and current headlines. The way of heralding the new recovery dawn is apparently by moaning that it is going to be a hard, long slog.
Yes, we know that the journey will be long and arduous, but why can’t it be with a spring in one’s step? It is because times remain hard for many, and yes, too many remember vividly what laid them low only very recently, with many unresolved anxieties about these problems not having been quite resolved yet. For the hardship could still come back in waves, overcoming us again (and again) and known as double dips and W-shaped recoveries refusing to get off the floor.
Modern economies actually have proved far more resilient than that, boosted by active policy measures and natural recuperation powers. But psychologically such starts remain for long very unhappy periods, just like a Siberian winter which towards the end feels it will go on forever (not unlike the darkest night even as the dawn is about to show her presence).
So will this time be different?
We don’t have a unique political experience and Madiba on tap to cook up a positive storm of emotions. Instead at every turn we are invited to look into Julius Malema’s mug shot. Not quite the same thing, now is it? Even if Julius is a great hit where it matters most to him and the leadership, in the townships.
But surely we have something better up our sleeve this time? For sports-mad South Africa the world cup soccer in mid-2010 is ready made to lift all spirits?
It will be, but perhaps not quite, given the long billing that the whole thing is probably already fully absorbed in the national psychic (though a month of football awaits that should soften even the hardest sentiments).
But that pleasing touch has to overcome something that was truly awesome, the biggest financial crash ever, Eskom putting out the lights, Julius rearranging the political furniture and the Greatest Recession since the Great Depression (at least in the West which also touched us deeply, going by daily appearances).
That’s an emotive cocktail that reminds of the late seventies, the mid eighties and the late 1990s. Man, this sense of the world ending, being hit by a truck, connecting with the canvas and feeling you will never get up again (aside of watching a bit of good soccer while in deep convalescence, of course).
Feeling sorry for oneself is an old habit, especially after a big hit, and this one couldn’t have been bigger in its unnerving, sudden, catastrophic impact.
But the historic record shows clearly that after these episodic stays in the fridge, something tends to turn up that starts to warm the cockles of our hearth, even if initially we don’t quite catch on that the weather is changing.
Asset prices start to rise, with stock market but also property having a fine nose for change in the air, sniffing its presence and starting the process of repositioning.
Yet most of us tend to be doff after ten rounds with painful depression, not seeing the lightening dawn until it suddenly bursts upon us. As if someone throws a switch, and the wintry landscape overnight makes way for late spring and early summer.
There are parts of the world where the seasonal changes are that abrupt. And I notice in our economy similar symptoms, especially among households (despite early birds) and usually with a considerable lag also in business (despite the ongoing robustness of so many enterprising entrepreneurs).
In the closing moments of 1979, and as January 1980 opened with a record $850 gold price (Russia was belligerently entering Afghanistan), there was such a moment when our collective psychological switch was finally thrown (a full 25 months after recession ended).
And sometime in the spring of 2003, a full 50 months after that recession ended, the same thing happened.
After 1985 the magic moment never happened (we had some unfinished political business to complete first while being put on a starvation diet).
And after 1993 it took exactly one night (28 April 1994) to throw the switch. But I will take the liberty of claiming that it was really the super permafrost finally melting, 100 months after the horror that was 1985.
This is quite a choice, between 25, 50 and 100 months of post-natal depression before welcoming the new dawn.
In what category will 2009-2012 fall?
Well, first things first. Though the horrific experience only so recently left behind is still fresh in the memory, with Eskom and Julius apparently doing their best to remain in our daily consciousness, one should ask whether someone or something has come into our presence that is actually gently working us over, to the point of asking when this realization will finally dawn?
And yes, there is, and it probably will, shortly.
Gentle Ben Bernanke over at the Fed sure has the golden touch, with his bond buying and zero interest rates and seemingly wanting to go on forever and ever.
Our equity prices have responded joyfully, up 50% so far this year from their trough, even if we underperform our better peers by a factor of two (China, Brazil).
Then there is gold, setting new records as it approaches $1200, with breakout potential to the upside as long as Gentle Ben keeps it up. Even platinum playing catch up again after halving early last year from record dizzy heights. And house prices having bottomed and rising now. Ask any estate agent (anytime).
Something is warming us up, our economy is starting to rise again, even if most of us derisively insist on focusing on what matters most, the present and recent pain, thank you very much.
So our collective switch hasn’t been thrown quite yet. But the moment is coming. And I don’t think it will take another 25-100 months. Nine will do this time, thank you, just in time for the soccer final (especially if your favourite African team were to be there).
Let the fun begin. But first some more serious despair this summer as we contemplate the wreckage that was 2008 and 2009. Wow, it has been bad, not so?
Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics
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Contact me - scott@ipsinvest.com
Adelaide house values soar
DAVID NANKERVIS
November 08, 2009 12:15am
ADELAIDE houses have jumped the most in value of any Australian city, except for Perth, in a decade with the average home worth almost $250,000 more than in 1999.
The first review of property prices between 1999 and 2009, based on Valuer General figures, show sale prices for the whole state have soared an average 190 per cent.
This is compared to the sharemarket which rose 143 per cent over the same time.
The booming decade also saw the first Adelaide suburb break the million dollar average mark Unley Park in 2005.
Overall, the hottest properties were located predominantly in Adelaide's northern suburbs.
Full list: How your suburb performed in the past decade
Real estate experts are predicting that values will continue to escalate by 2019, they expect the average South Australian house will cost $684,000 and the number of million-dollar suburbs will soar to 69, leaving thousands of householders with homes worth seven figures.
The Real Estate Institute of SA said the imbalance between housing supply and buyer demand in SA had driven rapid property price rises in the past decade.
The average SA house increased from $124,000 in September 1999 to $360,000 in September this year.
"The population increase is driving demand and the State Government's 30-year plan shows a continual increase in population,'' REISA chief executive Greg Troughton said.
"Perth did so well because of the mining boom and we did well because we were coming off such a low base, Adelaide is still relatively affordable and people are looking across the border saying they can buy a nice investment property here.''
Of the top 20 suburban price movers, nine were in the northern suburbs, six in the south, five in the west and none in the east, according to Valuer General figures.
Real estate agent Anthony Toop said much of the increase in northern property prices was land based.
"There has been a lot of redevelopment in this region, with people subdividing the big blocks and major new housing projects such as Mawson Lakes and Playford Waters in Smithfield,'' Mr Toop said.
"And the way things are going, if there is no significant change to the State Government's land release policy, it is highly likely you will see the increase in Adelaide house prices of the past decade repeated in the next.''
Brock Harcourts CEO Greg Moulton agreed, adding the predicted jump in million-dollar-plus suburbs was not surprising.
"When I started in the business 20 years ago a million dollar sale was celebrated for a week - now $1 million buys you a three-bedroom home in Unley and you don't get a pool or a tennis court,'' he said.
The booming property market has also swelled State Government coffers by hundreds of millions of dollars annual land tax and stamp duty jumping from $738 million to $1.24 billion this decade, according to State Budget papers.
Independent Upper House MP John Darley said the government should follow the lead of local councils and adjust the property tax levy to increase at the same rate as inflation.
"Otherwise as prices increase so does the land tax (charged on investment properties) - which is eventually passed on to renters - and the amount of stamp duty paid by homebuyers,'' Mr Darley, a former Valuer General, said.
November 08, 2009 12:15am
ADELAIDE houses have jumped the most in value of any Australian city, except for Perth, in a decade with the average home worth almost $250,000 more than in 1999.
The first review of property prices between 1999 and 2009, based on Valuer General figures, show sale prices for the whole state have soared an average 190 per cent.
This is compared to the sharemarket which rose 143 per cent over the same time.
The booming decade also saw the first Adelaide suburb break the million dollar average mark Unley Park in 2005.
Overall, the hottest properties were located predominantly in Adelaide's northern suburbs.
Full list: How your suburb performed in the past decade
Real estate experts are predicting that values will continue to escalate by 2019, they expect the average South Australian house will cost $684,000 and the number of million-dollar suburbs will soar to 69, leaving thousands of householders with homes worth seven figures.
The Real Estate Institute of SA said the imbalance between housing supply and buyer demand in SA had driven rapid property price rises in the past decade.
The average SA house increased from $124,000 in September 1999 to $360,000 in September this year.
"The population increase is driving demand and the State Government's 30-year plan shows a continual increase in population,'' REISA chief executive Greg Troughton said.
"Perth did so well because of the mining boom and we did well because we were coming off such a low base, Adelaide is still relatively affordable and people are looking across the border saying they can buy a nice investment property here.''
Of the top 20 suburban price movers, nine were in the northern suburbs, six in the south, five in the west and none in the east, according to Valuer General figures.
Real estate agent Anthony Toop said much of the increase in northern property prices was land based.
"There has been a lot of redevelopment in this region, with people subdividing the big blocks and major new housing projects such as Mawson Lakes and Playford Waters in Smithfield,'' Mr Toop said.
"And the way things are going, if there is no significant change to the State Government's land release policy, it is highly likely you will see the increase in Adelaide house prices of the past decade repeated in the next.''
Brock Harcourts CEO Greg Moulton agreed, adding the predicted jump in million-dollar-plus suburbs was not surprising.
"When I started in the business 20 years ago a million dollar sale was celebrated for a week - now $1 million buys you a three-bedroom home in Unley and you don't get a pool or a tennis court,'' he said.
The booming property market has also swelled State Government coffers by hundreds of millions of dollars annual land tax and stamp duty jumping from $738 million to $1.24 billion this decade, according to State Budget papers.
Independent Upper House MP John Darley said the government should follow the lead of local councils and adjust the property tax levy to increase at the same rate as inflation.
"Otherwise as prices increase so does the land tax (charged on investment properties) - which is eventually passed on to renters - and the amount of stamp duty paid by homebuyers,'' Mr Darley, a former Valuer General, said.
New boom 'could last for years', says a bullish RBA
David Uren
AUSTRALIA is rapidly emerging from the downturn into an economic boom the Reserve Bank believes could last for years, powered by the resource industry and rapid population growth.
The bank's quarterly review of the economy, published yesterday, has sharply upgraded its short-term economic forecasts and presented a radical rethink of Australia's growth potential.
It believes the economy is about to overcome the infrastructure bottlenecks that held back resource exports during the boom which preceded the financial crisis.
The Reserve Bank suggests that boom will be dwarfed by the developments to come.
The Reserve Bank has sharply upgraded its short-term outlook, with growth to average 3 per cent in 2010-11, which is slightly more optimistic than Treasury's tip of 2.75 per cent, published in the budget update released on Monday. The bank expects the revival in the resource industry to start taking effect over the next year, with the big iron ore and coalmine firms expected to win price rises of 10 to 20 per cent in the next round of contract negotiations, and Australia's terms of trade set to start rising again.
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* China looms large for Aussie loan holders The Australian, 12 Nov 2009
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End of sidebar. Return to start of sidebar.
While iron ore exports have risen by 70 per cent over the past five years, the bank notes that coal exports have been held back by problems with shared rail and port infrastructure in Queensland and NSW.
"Over the next two years, if capacity comes on line as planned, production of these bulk commodities could increase by around one third, with further significant increases possible over the remainder of the decade."
LNG exports will grow three or four times once the $43 billion Gorgon project starts to come on line, and the Reserve Bank believes there is scope for more LNG expansion.
It says that there have been previous periods when many large resource projects were under consideration but the optimism faded and expansion plans were scrapped. However, it believes this is less likely now.
"This reflects three important considerations: the prospect of continued strong growth in China, India and other emerging economies in Asia; the fact that confirmed reserves of gas, iron ore and coal have already been discovered; and, for LNG, that projects generally lock in multi-decade contracts with buyers before construction commences."
Until now, both the Reserve Bank and Treasury have believed that ageing of the population and low productivity growth meant that Australia could no longer expect to grow at rates above 3 per cent without risking inflation.
"It will be less, and our growth aspirations would have to be adjusted accordingly," Glenn Stevens said in a speech shortly after being appointed Reserve Bank governor in 2006.
However, the bank said yesterday that the fastest population growth since the 1960s and rapid growth in business investment meant growth potential could now be much higher.
Business investment is building Australia's stock of plant and buildings at a rate of 5 per cent a year, double the rate of the 1990s and much higher than in any other advanced country.
The population is rising at more than 2 per cent a year, which is its fastest growth rate since the 1960s.
Even if productivity improvements are only modest, "growth in potential output in the immediate period ahead is likely to be above the standard estimates of recent years", the bank said.
The Reserve Bank's review follows comments on Wednesday by Mr Stevens to the Road to Recovery conference, presented by The Australian and the Melbourne Institute, that the growth in mining investment, which has risen from 1.5 per cent to 5 per cent of GDP over the past five years, could be eclipsed over coming years.
Mr Stevens suggested Australia might need to follow Norway in establishing an offshore fund to invest mining tax payments to minimise disruption to the economy.
Treasury shares the Reserve Bank's optimism about the long-term future for the resource sector, however the bank believes the upturn is more imminent and is also more confident about the rest of the economy.
Its quarterly review says business investment is turned around everywhere except commercial property, while Treasury says it remains weak outside the resource industry.
"Business investment is no longer expected to fall sharply, with spending supported by the improvement in business conditions, growth in Asia, the positive outlook for the resources sector and the fiscal stimulus measures," the Reserve Bank says.
Although it does not provide a forecast on unemployment, the Reserve Bank says its liaison program with private business shows that hiring is increasing, suggesting it believes there may be little if any further rise in the number of jobless.
The bank's central forecast is the economy can make the transition from downturn to resources boom without inflation breaking out of its 2 to 3 per cent target band, however it says investment could turn out to be even stronger than it expects.
"While this would have positive implications for longer-term potential growth of the economy, the higher level of investment spending and flow-on to the broader economy could see capacity pressures re-emerging in the near term, and a further appreciation of the exchange rate.
"In this event, underlying inflation would be expected to decline by less than in the central forecast."
AUSTRALIA is rapidly emerging from the downturn into an economic boom the Reserve Bank believes could last for years, powered by the resource industry and rapid population growth.
The bank's quarterly review of the economy, published yesterday, has sharply upgraded its short-term economic forecasts and presented a radical rethink of Australia's growth potential.
It believes the economy is about to overcome the infrastructure bottlenecks that held back resource exports during the boom which preceded the financial crisis.
The Reserve Bank suggests that boom will be dwarfed by the developments to come.
The Reserve Bank has sharply upgraded its short-term outlook, with growth to average 3 per cent in 2010-11, which is slightly more optimistic than Treasury's tip of 2.75 per cent, published in the budget update released on Monday. The bank expects the revival in the resource industry to start taking effect over the next year, with the big iron ore and coalmine firms expected to win price rises of 10 to 20 per cent in the next round of contract negotiations, and Australia's terms of trade set to start rising again.
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Related Coverage
* TURNBULL: Rudd 'wastes' economic crisis
* MICHAEL STUTCHBURY: Michael Stutchbury:: Bottlenecks choking recovery
* PAUL KELLY: Challenge of prosperity
* LENORE TAYLOR: Spending curbs an election conundrum
* China looms large for Aussie loan holders The Australian, 12 Nov 2009
* SUDDENLY, ECONOMY'S GROWTH POTENTIAL HAS GROWN The Australian, 11 Nov 2009
* Stuck in slow lane on road to riches The Australian, 9 Nov 2009
* Budgets to be on tighter rein The Australian, 21 Oct 2009
* Reserve wary over inflation The Australian, 20 Oct 2009
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While iron ore exports have risen by 70 per cent over the past five years, the bank notes that coal exports have been held back by problems with shared rail and port infrastructure in Queensland and NSW.
"Over the next two years, if capacity comes on line as planned, production of these bulk commodities could increase by around one third, with further significant increases possible over the remainder of the decade."
LNG exports will grow three or four times once the $43 billion Gorgon project starts to come on line, and the Reserve Bank believes there is scope for more LNG expansion.
It says that there have been previous periods when many large resource projects were under consideration but the optimism faded and expansion plans were scrapped. However, it believes this is less likely now.
"This reflects three important considerations: the prospect of continued strong growth in China, India and other emerging economies in Asia; the fact that confirmed reserves of gas, iron ore and coal have already been discovered; and, for LNG, that projects generally lock in multi-decade contracts with buyers before construction commences."
Until now, both the Reserve Bank and Treasury have believed that ageing of the population and low productivity growth meant that Australia could no longer expect to grow at rates above 3 per cent without risking inflation.
"It will be less, and our growth aspirations would have to be adjusted accordingly," Glenn Stevens said in a speech shortly after being appointed Reserve Bank governor in 2006.
However, the bank said yesterday that the fastest population growth since the 1960s and rapid growth in business investment meant growth potential could now be much higher.
Business investment is building Australia's stock of plant and buildings at a rate of 5 per cent a year, double the rate of the 1990s and much higher than in any other advanced country.
The population is rising at more than 2 per cent a year, which is its fastest growth rate since the 1960s.
Even if productivity improvements are only modest, "growth in potential output in the immediate period ahead is likely to be above the standard estimates of recent years", the bank said.
The Reserve Bank's review follows comments on Wednesday by Mr Stevens to the Road to Recovery conference, presented by The Australian and the Melbourne Institute, that the growth in mining investment, which has risen from 1.5 per cent to 5 per cent of GDP over the past five years, could be eclipsed over coming years.
Mr Stevens suggested Australia might need to follow Norway in establishing an offshore fund to invest mining tax payments to minimise disruption to the economy.
Treasury shares the Reserve Bank's optimism about the long-term future for the resource sector, however the bank believes the upturn is more imminent and is also more confident about the rest of the economy.
Its quarterly review says business investment is turned around everywhere except commercial property, while Treasury says it remains weak outside the resource industry.
"Business investment is no longer expected to fall sharply, with spending supported by the improvement in business conditions, growth in Asia, the positive outlook for the resources sector and the fiscal stimulus measures," the Reserve Bank says.
Although it does not provide a forecast on unemployment, the Reserve Bank says its liaison program with private business shows that hiring is increasing, suggesting it believes there may be little if any further rise in the number of jobless.
The bank's central forecast is the economy can make the transition from downturn to resources boom without inflation breaking out of its 2 to 3 per cent target band, however it says investment could turn out to be even stronger than it expects.
"While this would have positive implications for longer-term potential growth of the economy, the higher level of investment spending and flow-on to the broader economy could see capacity pressures re-emerging in the near term, and a further appreciation of the exchange rate.
"In this event, underlying inflation would be expected to decline by less than in the central forecast."
Sovereign funds fear inflation, looking to property & commodities
By Kevin Lim and Saeed Azhar, Reuters
SINGAPORE (Reuters) - Sovereign wealth funds are concerned about inflation caused by massive stimulus packages in the west and investing more in property and commodities to hedge against that risk, Franklin Templeton said on Friday.
"There is quite a lot of interest in real estate and other long-term hedges against inflation," David Smart, London-based global head of sovereign and supranational funds at Franklin Templeton told Reuters in an interview on Friday.
"When you have this degree of stimulus, if it is not unwound at the right time, the risk on the margins is that inflation will be higher rather than lower," said Smart, whose team advises or manages around $40 billion from sovereign funds and international organisations.
He said Franklin Templeton was not concerned about hyperinflation, but added the risk is that core inflation could hit 3-5 percent levels in developed countries from the 2 percent levels seen prior to the financial crisis.
Western governments and central banks have spent trillions of dollars to shore up banks and stimulate their economies over the past two years. While the measures have helped alleviate the worst recession in over 60 years, the surge in money supply has stoked fears that inflation could spike as the global economy recovers.
Smart, a former bond fund manager, said Franklin Templeton's sovereign clients are keen on real estate, in particular UK commercial property, which are offering net rental returns of 7.5 to 8 percent.
"From a currency perspective, the fact that sterling has declined quite a lot means in dollar terms you are getting something that would have cost you 50-60 percent more 18 months ago."
Sovereign funds are, however, wary about U.S. commercial property due to concerns prices could fall further.
The Federal Reserve said earlier this month that U.S. banks are at risk of sizeable new loan losses, particularly on commercial property.
"The price adjustments (in the U.S.) have not been nearly as savage as they have been in the other markets. There are a lot of issues on debt financing which have not really been addressed," Smart said.
Other investments favoured by sovereign wealth fund clients include inflation-linked bonds and commodities.
Sovereign funds, which together manage around $3 trillion (1.8 trillion pounds) in assets, have become more active in recent months, pouring billions into energy and commodities after a quiet first half of the year.
State investors led by Chinese and Abu Dhabi funds ploughed 61 percent of their total investment into natural resources and only 15 percent in financials, according to Barclays' estimates.
Smart said sovereign funds were concerned about the dollar's weakness and diversifying into other currencies, which partly explained the strength of the euro. Within Asia, the most popular currency was the won due to the depth of the Korean bond market.
Sovereign investors would, however, continue to buy U.S. Treasuries as there were few other alternatives.
"I would say some the U.S. dollar is still going to be a very substantial part of their portfolio in terms of the asset opportunities that are available in the U.S. and the liquidity that the bond market offers," he said.
Templeton's Smart said sovereign funds are also buying over private equity investments made by pension and university endowment funds.
Smart said some endowment funds had overcommitted to private equity, assuming their actual cash outlays would be smaller since the private equity fund would have paid out proceeds from the divestment of earlier investments.
"If you commit $100 million to private equity, you (assume) you are actually committing to a maximum of $75 million at one time because you get cash flows from earlier investments," he said.
SINGAPORE (Reuters) - Sovereign wealth funds are concerned about inflation caused by massive stimulus packages in the west and investing more in property and commodities to hedge against that risk, Franklin Templeton said on Friday.
"There is quite a lot of interest in real estate and other long-term hedges against inflation," David Smart, London-based global head of sovereign and supranational funds at Franklin Templeton told Reuters in an interview on Friday.
"When you have this degree of stimulus, if it is not unwound at the right time, the risk on the margins is that inflation will be higher rather than lower," said Smart, whose team advises or manages around $40 billion from sovereign funds and international organisations.
He said Franklin Templeton was not concerned about hyperinflation, but added the risk is that core inflation could hit 3-5 percent levels in developed countries from the 2 percent levels seen prior to the financial crisis.
Western governments and central banks have spent trillions of dollars to shore up banks and stimulate their economies over the past two years. While the measures have helped alleviate the worst recession in over 60 years, the surge in money supply has stoked fears that inflation could spike as the global economy recovers.
Smart, a former bond fund manager, said Franklin Templeton's sovereign clients are keen on real estate, in particular UK commercial property, which are offering net rental returns of 7.5 to 8 percent.
"From a currency perspective, the fact that sterling has declined quite a lot means in dollar terms you are getting something that would have cost you 50-60 percent more 18 months ago."
Sovereign funds are, however, wary about U.S. commercial property due to concerns prices could fall further.
The Federal Reserve said earlier this month that U.S. banks are at risk of sizeable new loan losses, particularly on commercial property.
"The price adjustments (in the U.S.) have not been nearly as savage as they have been in the other markets. There are a lot of issues on debt financing which have not really been addressed," Smart said.
Other investments favoured by sovereign wealth fund clients include inflation-linked bonds and commodities.
Sovereign funds, which together manage around $3 trillion (1.8 trillion pounds) in assets, have become more active in recent months, pouring billions into energy and commodities after a quiet first half of the year.
State investors led by Chinese and Abu Dhabi funds ploughed 61 percent of their total investment into natural resources and only 15 percent in financials, according to Barclays' estimates.
Smart said sovereign funds were concerned about the dollar's weakness and diversifying into other currencies, which partly explained the strength of the euro. Within Asia, the most popular currency was the won due to the depth of the Korean bond market.
Sovereign investors would, however, continue to buy U.S. Treasuries as there were few other alternatives.
"I would say some the U.S. dollar is still going to be a very substantial part of their portfolio in terms of the asset opportunities that are available in the U.S. and the liquidity that the bond market offers," he said.
Templeton's Smart said sovereign funds are also buying over private equity investments made by pension and university endowment funds.
Smart said some endowment funds had overcommitted to private equity, assuming their actual cash outlays would be smaller since the private equity fund would have paid out proceeds from the divestment of earlier investments.
"If you commit $100 million to private equity, you (assume) you are actually committing to a maximum of $75 million at one time because you get cash flows from earlier investments," he said.
U.K. Housing Market May Not Recover Peak Until 2014
By Peter Woodifield, Bloomberg
Nov. 20 (Bloomberg) -- U.K. house prices will probably fall next year, and it may take until 2014 to return to the levels at the 2007 peak of the country’s biggest housing boom, according to a Bloomberg survey.
Nine of 14 economists and real estate brokers surveyed said they foresee a decline in 2010 after a surprise rebound this year. They predict an average drop of about 1.6 percent, with estimates ranging from a loss of 10 percent to a rise of the same magnitude.
“The market is still overvalued, whichever measure you use,” said Seema Shah, a housing economist at Capital Economics Ltd., a research group in London, who was the most bearish in the survey. “Prices need to fall a further 20 percent to 25 percent to get back their long-term trend.”
A 7 percent gain in average prices since April was driven by a shortage of properties for sale and won’t be sustained, according to Shah. Most survey respondents said they don’t think the rally can last while Britain’s longest recession on record fuels unemployment and makes banks reluctant to lend.
Prices plunged 23 percent from September 2007 to April this year, according to Lloyds Banking Group Plc’s Halifax unit, after losses on U.S. subprime mortgages led global credit markets to seize up. They remain at 2005 levels.
For all of 2009, the average home will probably increase about 5 percent in value, to almost 161,000 pounds ($270,000), said Martin Gahbauer, Nationwide’s chief economist. Martin Ellis, chief economist of Halifax, Britain’s biggest provider of home loans, expects prices to be little changed.
120-Foot Garden
That’s no solace to sellers like Nicola Brookbanks, 37. She and her partner put their one-bedroom apartment in the Ealing district of London on the market almost three months ago so they could buy a house in nearby Acton with more space for their 14- month-old son. They bought the apartment, which has a 120-foot- long (37-meter) garden, for 315,000 pounds in March 2007.
After more than 60 viewings, and cutting the price by 25,000 pounds to 325,000 pounds, Brookbanks and her partner accepted their first offer of 318,000 pounds on Nov. 16. The transaction has yet to close.
“I am pretty surprised it has taken this long to get an offer,” she said.
U.K. residential real estate had almost tripled in value during the decade before the credit crunch. The gains encouraged more Britons to pour borrowed money into homes and more “buy- to-let” investors to acquire property for rental income.
6.2 Times Earnings
At the market’s height, banks were financing loans as large as five times a borrower’s salary. That lifted the average price to a record 6.2 times earnings, compared with the long-term average of 3.7 times, according to Capital Economics. The ratio has since fallen to 5.2.
U.S. house prices, by contrast, are at their most affordable for at least 28 years, according to Lawrence Yun, chief economist of the Chicago-based National Association of Realtors. The average price of an American home is 2.4 times income, down from the high of almost 3.4 times in 2006.
Even at the peak of the U.K.’s previous housing boom, which ended in 1989, the ratio was only 4.7. Values then took four years to fall 13 percent and didn’t return to pre-crash levels until January 1998, almost nine years later.
“There is a problem with very high house prices, and getting over it is probably a good thing,” said Martin Weale, director of the London-based National Institute of Economic and Social Research. “I am optimistic that we will move back to a more normal level.”
Out of Work
Claimants for jobless benefits in the U.K. have more than doubled since March 2008, to 1.64 million. They may climb 17 percent more by the end of 2010 to 1.92 million, according to the average of 37 forecasts compiled by the U.K. Treasury.
“We are cautious on the outlook for the housing market and believe anticipated growth in unemployment throughout next year will apply downward pressure on house prices,” Graham Beale, chief executive officer of Nationwide Building Society, said on a conference call with reporters today.
There are already signs that the rally may be petering out. Prices in October rose by the smallest amount in six months, or 0.4 percent, according to Nationwide Building Society.
Sellers reduced asking prices for the first time in three months in the four weeks to Nov. 7 as demand dwindled before the Christmas holidays, said Rightmove Plc, the owner of the U.K.’s largest residential property Web site.
Prime London
This year’s recovery has been fueled by competition for the limited supply of London homes costing more than 1 million pounds, according to London-based broker Knight Frank LLP. Wealthy cash buyers have been lured by lower prices and the decline of the pound against currencies including the euro, dollar and Chinese yuan in the past two years.
In parts of central London, such as Chelsea and South Kensington, prices for the best properties are already back to 2007 levels, according to Robert Green, a partner at John D Wood & Co. Further behind are regions such as the West Midlands -- which includes Birmingham, the U.K.’s second-largest city -- where prices will take until 2015 to return to their peak, Knight Frank predicts.
“The recent rise we have seen is all about the imbalance between supply and demand, with very few properties coming on the market,” said Capital Economics’ Shah.
Rightmove has listed 934,000 homes for sale so far this year, a 45 percent decrease from the same period of 2007, said Tom McGuigan, the company’s spokesman.
Few Transactions
House sales in England and Wales fell to 26,662 in January, the lowest in at least 14 years, according to the Land Registry. In the first seven months of the year, they averaged 40,448 a month, or 61 percent less than in the same period of 2007.
The number of U.K. mortgage approvals is still half of what it was at the market’s peak, Bank of England data show.
Michael Saunders, chief economist for western Europe at Citigroup Inc., was the most optimistic in Bloomberg’s survey. He said recent nationwide price gains show that the British housing market could surprise again and rise in 2010.
Saunders, who predicted a 10 percent drop in 2009 at the start of the year, expects prices to appreciate 5 percent to 10 percent next year.
“You have had a test case, which tells you that low interest rates can outweigh the labor market,” Saunders said. “I changed my mind because of the data. Housing has been surprisingly strong.”
From October 2008 to March, the Bank of England cut its main borrowing rate to a record low of 0.5 percent from 5 percent, as part of a global effort to rescue the world financial system.
25% Deposits
For some potential house buyers, low interest rates don’t matter if the down payment is unaffordable. Lenders burned by the financial crisis are typically demanding deposits of 25 percent. During the housing bubble, the typical down payment was 5 percent, and buyers sometimes didn’t have to make any deposit at all.
With first-time buyers in London paying an average of about 180,000 pounds for a property, that means they have to put down 45,000 pounds in cash to get a mortgage.
Two years ago, Graeme Oliver, 45, and his partner had a mortgage lined up to buy a home in London that only required a 5 percent down payment. They scrapped their plans after she became pregnant because the property wasn’t suitable for a child.
Now the two physiotherapists, who together earn 80,000 pounds a year, will have to make a deposit at least three times that size to get on the property ladder, he said. To manage that, they’d have to borrow from his family.
They have put plans for a move on hold because they can’t afford anything suitable for a family. Oliver said he anticipates that more job cuts in London, particularly in public services, will lead to more house repossessions and lower prices.
“If the market doesn’t dip significantly in this part of the world, we will continue renting, probably for the rest of our lives,” he said. “I can’t see how it is possible house prices won’t be lower in a year’s time.”
The following table lists estimates for 2010 house prices and projections for when the market will return to 2007 levels.
Firm 2010 (%) Estimated Return
Forecast to Peak Prices
Capital Economics -10 2019
Fitch -6 to -8 2016/2017
Savills -6.6 2014
RICS -5 2012
Knight Frank -3 2014
NIESR -3 2015
Deutsche Bank -2 2016
Cluttons -1.5 2014
RBS -1 2013
Investec 0 2012/2013
Halifax 0 No estimate
BNP Paribas 3.5 2013
CEBR 4 2013
Citigroup 5 to 10 2012
To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.
Nov. 20 (Bloomberg) -- U.K. house prices will probably fall next year, and it may take until 2014 to return to the levels at the 2007 peak of the country’s biggest housing boom, according to a Bloomberg survey.
Nine of 14 economists and real estate brokers surveyed said they foresee a decline in 2010 after a surprise rebound this year. They predict an average drop of about 1.6 percent, with estimates ranging from a loss of 10 percent to a rise of the same magnitude.
“The market is still overvalued, whichever measure you use,” said Seema Shah, a housing economist at Capital Economics Ltd., a research group in London, who was the most bearish in the survey. “Prices need to fall a further 20 percent to 25 percent to get back their long-term trend.”
A 7 percent gain in average prices since April was driven by a shortage of properties for sale and won’t be sustained, according to Shah. Most survey respondents said they don’t think the rally can last while Britain’s longest recession on record fuels unemployment and makes banks reluctant to lend.
Prices plunged 23 percent from September 2007 to April this year, according to Lloyds Banking Group Plc’s Halifax unit, after losses on U.S. subprime mortgages led global credit markets to seize up. They remain at 2005 levels.
For all of 2009, the average home will probably increase about 5 percent in value, to almost 161,000 pounds ($270,000), said Martin Gahbauer, Nationwide’s chief economist. Martin Ellis, chief economist of Halifax, Britain’s biggest provider of home loans, expects prices to be little changed.
120-Foot Garden
That’s no solace to sellers like Nicola Brookbanks, 37. She and her partner put their one-bedroom apartment in the Ealing district of London on the market almost three months ago so they could buy a house in nearby Acton with more space for their 14- month-old son. They bought the apartment, which has a 120-foot- long (37-meter) garden, for 315,000 pounds in March 2007.
After more than 60 viewings, and cutting the price by 25,000 pounds to 325,000 pounds, Brookbanks and her partner accepted their first offer of 318,000 pounds on Nov. 16. The transaction has yet to close.
“I am pretty surprised it has taken this long to get an offer,” she said.
U.K. residential real estate had almost tripled in value during the decade before the credit crunch. The gains encouraged more Britons to pour borrowed money into homes and more “buy- to-let” investors to acquire property for rental income.
6.2 Times Earnings
At the market’s height, banks were financing loans as large as five times a borrower’s salary. That lifted the average price to a record 6.2 times earnings, compared with the long-term average of 3.7 times, according to Capital Economics. The ratio has since fallen to 5.2.
U.S. house prices, by contrast, are at their most affordable for at least 28 years, according to Lawrence Yun, chief economist of the Chicago-based National Association of Realtors. The average price of an American home is 2.4 times income, down from the high of almost 3.4 times in 2006.
Even at the peak of the U.K.’s previous housing boom, which ended in 1989, the ratio was only 4.7. Values then took four years to fall 13 percent and didn’t return to pre-crash levels until January 1998, almost nine years later.
“There is a problem with very high house prices, and getting over it is probably a good thing,” said Martin Weale, director of the London-based National Institute of Economic and Social Research. “I am optimistic that we will move back to a more normal level.”
Out of Work
Claimants for jobless benefits in the U.K. have more than doubled since March 2008, to 1.64 million. They may climb 17 percent more by the end of 2010 to 1.92 million, according to the average of 37 forecasts compiled by the U.K. Treasury.
“We are cautious on the outlook for the housing market and believe anticipated growth in unemployment throughout next year will apply downward pressure on house prices,” Graham Beale, chief executive officer of Nationwide Building Society, said on a conference call with reporters today.
There are already signs that the rally may be petering out. Prices in October rose by the smallest amount in six months, or 0.4 percent, according to Nationwide Building Society.
Sellers reduced asking prices for the first time in three months in the four weeks to Nov. 7 as demand dwindled before the Christmas holidays, said Rightmove Plc, the owner of the U.K.’s largest residential property Web site.
Prime London
This year’s recovery has been fueled by competition for the limited supply of London homes costing more than 1 million pounds, according to London-based broker Knight Frank LLP. Wealthy cash buyers have been lured by lower prices and the decline of the pound against currencies including the euro, dollar and Chinese yuan in the past two years.
In parts of central London, such as Chelsea and South Kensington, prices for the best properties are already back to 2007 levels, according to Robert Green, a partner at John D Wood & Co. Further behind are regions such as the West Midlands -- which includes Birmingham, the U.K.’s second-largest city -- where prices will take until 2015 to return to their peak, Knight Frank predicts.
“The recent rise we have seen is all about the imbalance between supply and demand, with very few properties coming on the market,” said Capital Economics’ Shah.
Rightmove has listed 934,000 homes for sale so far this year, a 45 percent decrease from the same period of 2007, said Tom McGuigan, the company’s spokesman.
Few Transactions
House sales in England and Wales fell to 26,662 in January, the lowest in at least 14 years, according to the Land Registry. In the first seven months of the year, they averaged 40,448 a month, or 61 percent less than in the same period of 2007.
The number of U.K. mortgage approvals is still half of what it was at the market’s peak, Bank of England data show.
Michael Saunders, chief economist for western Europe at Citigroup Inc., was the most optimistic in Bloomberg’s survey. He said recent nationwide price gains show that the British housing market could surprise again and rise in 2010.
Saunders, who predicted a 10 percent drop in 2009 at the start of the year, expects prices to appreciate 5 percent to 10 percent next year.
“You have had a test case, which tells you that low interest rates can outweigh the labor market,” Saunders said. “I changed my mind because of the data. Housing has been surprisingly strong.”
From October 2008 to March, the Bank of England cut its main borrowing rate to a record low of 0.5 percent from 5 percent, as part of a global effort to rescue the world financial system.
25% Deposits
For some potential house buyers, low interest rates don’t matter if the down payment is unaffordable. Lenders burned by the financial crisis are typically demanding deposits of 25 percent. During the housing bubble, the typical down payment was 5 percent, and buyers sometimes didn’t have to make any deposit at all.
With first-time buyers in London paying an average of about 180,000 pounds for a property, that means they have to put down 45,000 pounds in cash to get a mortgage.
Two years ago, Graeme Oliver, 45, and his partner had a mortgage lined up to buy a home in London that only required a 5 percent down payment. They scrapped their plans after she became pregnant because the property wasn’t suitable for a child.
Now the two physiotherapists, who together earn 80,000 pounds a year, will have to make a deposit at least three times that size to get on the property ladder, he said. To manage that, they’d have to borrow from his family.
They have put plans for a move on hold because they can’t afford anything suitable for a family. Oliver said he anticipates that more job cuts in London, particularly in public services, will lead to more house repossessions and lower prices.
“If the market doesn’t dip significantly in this part of the world, we will continue renting, probably for the rest of our lives,” he said. “I can’t see how it is possible house prices won’t be lower in a year’s time.”
The following table lists estimates for 2010 house prices and projections for when the market will return to 2007 levels.
Firm 2010 (%) Estimated Return
Forecast to Peak Prices
Capital Economics -10 2019
Fitch -6 to -8 2016/2017
Savills -6.6 2014
RICS -5 2012
Knight Frank -3 2014
NIESR -3 2015
Deutsche Bank -2 2016
Cluttons -1.5 2014
RBS -1 2013
Investec 0 2012/2013
Halifax 0 No estimate
BNP Paribas 3.5 2013
CEBR 4 2013
Citigroup 5 to 10 2012
To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.
The Canary Wharf Rental Market Strengthens as Confidence Swells
2009-11-18 18:04:27 - The past month has seen further strengthening of the residential rental market in Canary Wharf, with demand increasing, particularly for newly built stock within walking distance of the financial centre.
In the early part of 2009 the E14 market – and Canary Wharf in particular – was still suffering from the impact of uncertainty in the financial services sector in the wake of a wave of redundancy announcements. This translated to relatively low numbers of tenant applicants. However, since then, the tide has turned.
Mirroring the national and London-wide picture, demand
for property within walking distance of Canary Wharf has increased; particularly for brand new developments that are coming to the rental market for the first time.
During the spring/summer, Canary Wharf has seen apartments completing at Ability Place (formerly known as The Icon) and the long awaited Pan Peninsula. Young Group’s estate agency, Young London, has rented a number of apartments within these developments, recently signing, referencing and moving a tenant into a 2 bedroom apartment in Pan Peninsula within just 10 days of being instructed on the property. There is a good demand for these new developments.
Also of note is that the completion of these two major developments failed to satisfy the resurgence in demand for good quality apartments within walking distance of the financial centre, and demand continues to grow. Corporate clients are returning to the market and tenants are more confident about their job prospects, ready to commit to new tenancies. Recent Bank results are adding support to this sentiment.
Tenants are no longer able to bargain hard for property. Neil Young, CEO of Young Group, comments; “Back in early 2009 the relatively low number of tenants who were looking to rent in Canary Wharf were in a strong position to negotiate. But the situation has reversed dramatically. Tenants have seen rents in the area stabilise and are now keen to renew or move into the area before rents rise.
“Like our prospective tenants, we’re excited by rental opportunities that The Landmark presents. The development’s position is second to none and it has spectacular views. Add to this the cache of The Landmark being the newest luxury development on the block and we’re confident that rental demand will be high.”
In the early part of 2009 the E14 market – and Canary Wharf in particular – was still suffering from the impact of uncertainty in the financial services sector in the wake of a wave of redundancy announcements. This translated to relatively low numbers of tenant applicants. However, since then, the tide has turned.
Mirroring the national and London-wide picture, demand
for property within walking distance of Canary Wharf has increased; particularly for brand new developments that are coming to the rental market for the first time.
During the spring/summer, Canary Wharf has seen apartments completing at Ability Place (formerly known as The Icon) and the long awaited Pan Peninsula. Young Group’s estate agency, Young London, has rented a number of apartments within these developments, recently signing, referencing and moving a tenant into a 2 bedroom apartment in Pan Peninsula within just 10 days of being instructed on the property. There is a good demand for these new developments.
Also of note is that the completion of these two major developments failed to satisfy the resurgence in demand for good quality apartments within walking distance of the financial centre, and demand continues to grow. Corporate clients are returning to the market and tenants are more confident about their job prospects, ready to commit to new tenancies. Recent Bank results are adding support to this sentiment.
Tenants are no longer able to bargain hard for property. Neil Young, CEO of Young Group, comments; “Back in early 2009 the relatively low number of tenants who were looking to rent in Canary Wharf were in a strong position to negotiate. But the situation has reversed dramatically. Tenants have seen rents in the area stabilise and are now keen to renew or move into the area before rents rise.
“Like our prospective tenants, we’re excited by rental opportunities that The Landmark presents. The development’s position is second to none and it has spectacular views. Add to this the cache of The Landmark being the newest luxury development on the block and we’re confident that rental demand will be high.”
Top 10 property desitnations for 2010
According to Homes Overseas, a UK based company helping people invest internationally they believe the top 10 desitnations are:
1. Brazil
2. France
3. USA
4. Norway
5. Switzerland
6. Australia
7. Malaysia
8. Abu Dhabi
9. Oman
10. South Africa
http://www.ipsinvest.com/News_182_Top_10_property_destinations_in_2010_world_wide.aspx
1. Brazil
2. France
3. USA
4. Norway
5. Switzerland
6. Australia
7. Malaysia
8. Abu Dhabi
9. Oman
10. South Africa
http://www.ipsinvest.com/News_182_Top_10_property_destinations_in_2010_world_wide.aspx
Commercial property values prompt fears of a bubble
Telegraph
By Graham Ruddick, City Reporter (Automotive, Healthcare, Property)
Published: 7:56PM GMT 06 Nov 2009
Concerns that the UK property market is entering a bubble have been exacerbated after new data showed yields have returned to 2006 levels after seeing their biggest monthly decline since 1993 in October.
Yields, which measure rental returns against the value of a property and are a useful barometer of risk appetite, fell below 5pc for prime retail properties in October, below 6pc for offices, and 7pc for industrial property, according to BNP Paribas Real Estate. An overall fall of 35 basis points was the biggest since 1993, Cushman & Wakefield said.
There are fears that property values are recovering too quickly because of a lack of supply and strong overseas demand.
Segro, the warehouse owner, on Friday sold its Great Western Industrial Park in Southall, West London for £110.4m to the Universities Superannuation Scheme at a yield of 6.9pc.
By Graham Ruddick, City Reporter (Automotive, Healthcare, Property)
Published: 7:56PM GMT 06 Nov 2009
Concerns that the UK property market is entering a bubble have been exacerbated after new data showed yields have returned to 2006 levels after seeing their biggest monthly decline since 1993 in October.
Yields, which measure rental returns against the value of a property and are a useful barometer of risk appetite, fell below 5pc for prime retail properties in October, below 6pc for offices, and 7pc for industrial property, according to BNP Paribas Real Estate. An overall fall of 35 basis points was the biggest since 1993, Cushman & Wakefield said.
There are fears that property values are recovering too quickly because of a lack of supply and strong overseas demand.
Segro, the warehouse owner, on Friday sold its Great Western Industrial Park in Southall, West London for £110.4m to the Universities Superannuation Scheme at a yield of 6.9pc.
Foreign investors flock to Australian property
CHRIS ZAPPONE, BusinessDay
November 6, 2009
Comments 20
The strong Australian dollar has done little to cool overseas demand for real estate as foreign cash seeks out a lucrative home in the nation's residential property market.
Real estate agents say overseas-based bidders are increasingly common at auctions around the country, with the resulting additional demand stoking already rising clearance rates and prices.
John Bongiorno, director of Marshall White & Co, in Melbourne said international buyers had typically made up 5 to 10 per cent of sales, a figures that had recently risen to about 15 per cent. And the dollar's rise had not yet dampened demand.
Mr Bongiorno said his overseas clientele was ‘‘predominately mainland Chinese'', some of which adopted a fly-in, fly-out approach to house hunting.
‘‘We have people who fly in on a Saturday morning for auctions and will fly out the same day,'' he said. ‘‘They'll just arrive in Melbourne specifically for the auction.''
Marshall White & Co has forged alliances with immigration services firms in China to promote local property.
Further north, the rising demand from Asia, especially China, is even more pronounced.
Tina Edwards, sales manager at Brisbane-based Yong Real Estate , which caters to local and international Asian buyers, said investment from China had ‘‘really soared recently''.
She said the surge may have peaked at as much of 90 per cent of the transactions handled by the firm, with the Aussie dollar's recent jump above 90 US cents (about 6.2 yuan) deterring some buyers.
But Ms Edwards also said temporary lull may also reflect the shortage of suitable properties to sell after a period of sustained demand.
Real estate agents credit the overseas demand as contributing to rising home prices, which have increased nationally 8.1 per cent in the first nine months of the year, according to the RP Data-Rismark Index released today.
Changed rules
Australia's run-up in house prices is far from unique, with markets as far-flung as London, Singapore and mainland China itself reporting rapid rises in recent months.
The local market, though, has also seen a jump because of a relaxation in the rules covering foreign investment in Australia's property market since April, agents say.
A spokesperson for Assistant Treasurer Nick Sherry said despite the rule changes the FIRB rules were designed to spur the creation of additional housing supply rather than add to affordability problems.
"Foreign non-residents are still prohibited from owning existing dwellings in Australia," he said. "They can only purchase a new dwelling or build one from scratch."
Temporary residents are only allowed to purchase one existing dwelling, he said "and only if they will live in it."
Nonetheless, the recent FIRB rule change redefined "new dwelling'' to mean unsold property rented out for 12 months or less.
The changes also allow foreign companies to buy established dwellings for use of Australian-based staff.
Chinese investments on the rise
Keeping tabs on the size of inbound property investment is difficult. But looking at the most recent data from the Foreign Investment Review Board in Canberra, covering the 2003-04 to 2007-08 period, China-sourced investment approvals rose to a share of 3.3 per cent of the total foreign investment, up from just 0.4 per cent at the start.
While analysts say the proportion has risen further, the increase over that period "is illustrative of the increased role of Chinese and other Asians in the Australian property market,'' said George Bougias senior economist strategic research at Charter Keck Cramer.
Under one of the rule changes, temporary residents became exempt from notifying the proposed acquisitions of established residential real estate for their own residence, or for new property or vacant residential land.
In practice, buyers' advocates and real estate agents report wealthy Chinese buyers purchasing homes and units near schools where their children are enrolled.
Brett Draffen chief of development for property developer Mirvac said the property developer saw "improving'' interest coming out of China in two areas of the Australian market.
Mr Draffen said the trends were so far not "massive'' nor "across the board'' but were dependent on the types of residences offered to foreign investors.
"In the $400,000 to $600,000 band we've seen a slight increase,'' he said. At the other end of the range, wealthy Chinese were looking at "de-risking'' their holdings of assets in their home country by moving money abroad, including into Australian property.
Scott McGeever, director of Brisbane-based buyers advocate Property Searchers, said some Chinese buyers have been attracted to Australian property as a way to ride both the gains in the surging dollar and the value of the property itself.
As long as the value of the dollar didn't fall dramatically - or the yuan suddenly strengthen - "if they bought and sold it for the same price ostensibly, well, they'd make money off of it because of the currency,'' he said, adding that his firm didn't serve those investors.
Asia and beyond
Rich Harvey managing director of Sydney-based Property Buyer said he had a couple clients pursuing such strategies, although investment in Australian properties was also of interest to investors from other parts of the world.
"It's about the timing of entry and exit for your currency play, which you can overlay with a property play and do very well out of it,'' said the buyer advocate, who serves Australian and international clients.
These types of investors typically held the property for three years, as opposed to the minimum of five years most investors prefer, Mr Harvey.
The rise in investor interest from China reflects Asia's emerging status as an engine of world growth. More wealth gives Asians more options for investment, which in turn translates into more interest in property, education and business relationships with Australia.
The number of settler arrivals from China, defined as the arrival of people entitled to permanent residence entering the country, rose 14.9 per cent - the third fastest growth of any source - to 14,035 people, in the 2007-08 year, the Department of Immigration and Citizenship.
New Zealand, United Kingdom, India all ranked ahead of China in the number of settler arrivals, the data shows.
Affordability worries
Nonetheless, the impact of the new investment has raised questions about housing affordability for would-be owner-occupiers.
One Melbourne real estate agent, who asked not to be identified, privately worried about what the Chinese demand would do for the chances of local buyers.
He said the topic was a constant subject within the real estate industry, although few agents wanted to question a trend that generated financial benefits for them.
In his view, "the rising Australia dollar has not impacted at all the demand from Chinese,'' he said, estimating that currently in Melbourne about 40 per cent of properties over $1 million in the inner suburbs were being sold to Chinese and Indian investors.
czappone@fairfax.com.au
November 6, 2009
Comments 20
The strong Australian dollar has done little to cool overseas demand for real estate as foreign cash seeks out a lucrative home in the nation's residential property market.
Real estate agents say overseas-based bidders are increasingly common at auctions around the country, with the resulting additional demand stoking already rising clearance rates and prices.
John Bongiorno, director of Marshall White & Co, in Melbourne said international buyers had typically made up 5 to 10 per cent of sales, a figures that had recently risen to about 15 per cent. And the dollar's rise had not yet dampened demand.
Mr Bongiorno said his overseas clientele was ‘‘predominately mainland Chinese'', some of which adopted a fly-in, fly-out approach to house hunting.
‘‘We have people who fly in on a Saturday morning for auctions and will fly out the same day,'' he said. ‘‘They'll just arrive in Melbourne specifically for the auction.''
Marshall White & Co has forged alliances with immigration services firms in China to promote local property.
Further north, the rising demand from Asia, especially China, is even more pronounced.
Tina Edwards, sales manager at Brisbane-based Yong Real Estate , which caters to local and international Asian buyers, said investment from China had ‘‘really soared recently''.
She said the surge may have peaked at as much of 90 per cent of the transactions handled by the firm, with the Aussie dollar's recent jump above 90 US cents (about 6.2 yuan) deterring some buyers.
But Ms Edwards also said temporary lull may also reflect the shortage of suitable properties to sell after a period of sustained demand.
Real estate agents credit the overseas demand as contributing to rising home prices, which have increased nationally 8.1 per cent in the first nine months of the year, according to the RP Data-Rismark Index released today.
Changed rules
Australia's run-up in house prices is far from unique, with markets as far-flung as London, Singapore and mainland China itself reporting rapid rises in recent months.
The local market, though, has also seen a jump because of a relaxation in the rules covering foreign investment in Australia's property market since April, agents say.
A spokesperson for Assistant Treasurer Nick Sherry said despite the rule changes the FIRB rules were designed to spur the creation of additional housing supply rather than add to affordability problems.
"Foreign non-residents are still prohibited from owning existing dwellings in Australia," he said. "They can only purchase a new dwelling or build one from scratch."
Temporary residents are only allowed to purchase one existing dwelling, he said "and only if they will live in it."
Nonetheless, the recent FIRB rule change redefined "new dwelling'' to mean unsold property rented out for 12 months or less.
The changes also allow foreign companies to buy established dwellings for use of Australian-based staff.
Chinese investments on the rise
Keeping tabs on the size of inbound property investment is difficult. But looking at the most recent data from the Foreign Investment Review Board in Canberra, covering the 2003-04 to 2007-08 period, China-sourced investment approvals rose to a share of 3.3 per cent of the total foreign investment, up from just 0.4 per cent at the start.
While analysts say the proportion has risen further, the increase over that period "is illustrative of the increased role of Chinese and other Asians in the Australian property market,'' said George Bougias senior economist strategic research at Charter Keck Cramer.
Under one of the rule changes, temporary residents became exempt from notifying the proposed acquisitions of established residential real estate for their own residence, or for new property or vacant residential land.
In practice, buyers' advocates and real estate agents report wealthy Chinese buyers purchasing homes and units near schools where their children are enrolled.
Brett Draffen chief of development for property developer Mirvac said the property developer saw "improving'' interest coming out of China in two areas of the Australian market.
Mr Draffen said the trends were so far not "massive'' nor "across the board'' but were dependent on the types of residences offered to foreign investors.
"In the $400,000 to $600,000 band we've seen a slight increase,'' he said. At the other end of the range, wealthy Chinese were looking at "de-risking'' their holdings of assets in their home country by moving money abroad, including into Australian property.
Scott McGeever, director of Brisbane-based buyers advocate Property Searchers, said some Chinese buyers have been attracted to Australian property as a way to ride both the gains in the surging dollar and the value of the property itself.
As long as the value of the dollar didn't fall dramatically - or the yuan suddenly strengthen - "if they bought and sold it for the same price ostensibly, well, they'd make money off of it because of the currency,'' he said, adding that his firm didn't serve those investors.
Asia and beyond
Rich Harvey managing director of Sydney-based Property Buyer said he had a couple clients pursuing such strategies, although investment in Australian properties was also of interest to investors from other parts of the world.
"It's about the timing of entry and exit for your currency play, which you can overlay with a property play and do very well out of it,'' said the buyer advocate, who serves Australian and international clients.
These types of investors typically held the property for three years, as opposed to the minimum of five years most investors prefer, Mr Harvey.
The rise in investor interest from China reflects Asia's emerging status as an engine of world growth. More wealth gives Asians more options for investment, which in turn translates into more interest in property, education and business relationships with Australia.
The number of settler arrivals from China, defined as the arrival of people entitled to permanent residence entering the country, rose 14.9 per cent - the third fastest growth of any source - to 14,035 people, in the 2007-08 year, the Department of Immigration and Citizenship.
New Zealand, United Kingdom, India all ranked ahead of China in the number of settler arrivals, the data shows.
Affordability worries
Nonetheless, the impact of the new investment has raised questions about housing affordability for would-be owner-occupiers.
One Melbourne real estate agent, who asked not to be identified, privately worried about what the Chinese demand would do for the chances of local buyers.
He said the topic was a constant subject within the real estate industry, although few agents wanted to question a trend that generated financial benefits for them.
In his view, "the rising Australia dollar has not impacted at all the demand from Chinese,'' he said, estimating that currently in Melbourne about 40 per cent of properties over $1 million in the inner suburbs were being sold to Chinese and Indian investors.
czappone@fairfax.com.au
London Luxury-Home Price Drop Narrows on Scarcity
By Simon Packard, Bloomberg
Nov. 6 (Bloomberg) -- Luxury-home prices in London had their smallest annual decline in 15 months in October on a shortage of properties for sale, Knight Frank LLP said.
The average value of houses and apartments costing more than 1 million pounds ($1.7 million) fell 3.2 percent from a year earlier, the seventh consecutive month of narrowing losses, the London-based property broker said. Prices increased 2.1 percent from September, the most since July 2007. That left values 16 percent below their March 2008 peak.
Luxury residences in neighborhoods like Chelsea, Kensington and Mayfair may return to peak prices in 2012, a year or two sooner than the rest of the U.K. housing market, Knight Frank and Savills Plc estimate. The pound’s 19 percent decline against a basket of currencies since the home market’s peak revived demand from foreign investors.
“The shortage of good property for sale is acute,” said Nathalie Hirst, the London head of Prime Purchase, which acts for wealthy buyers. “People have been able to hold onto their properties, so there haven’t been any forced sales.”
The Bank of England’s record-low benchmark interest rate of 0.5 percent eased pressure on homeowners to sell and reluctance among banks to repossess properties also limited the number of homes available.
Knight Frank estimates the number of luxury properties on sale for the first time fell almost 60 percent from October 2008, while the number of overseas buyers climbed 45 percent. The annual price decline was the smallest since July 2008.
Competing Bids
Two weeks ago, a buyer agreed to purchase an apartment near Hyde Park that’s been on Knight Frank’s books for 14 months. The initial asking price of 3.75 million pounds had been lowered to 3.45 million pounds before competition between buyers lifted the agreed price to 3.7 million pounds, said Rupert des Forges, head of the broker’s Knightsbridge office.
“The improved confidence and prices show the resilience of the prime London market,” he said. “Long-term investors have been waiting 10 years for this moment.”
The largest price gains were in Chelsea, Kensington and Notting Hill, Knight Frank said. It calculates that a 2 million- pound home in those neighborhoods appreciated by 1,340 pounds a day in the three months through October.
Second Homes
About 80 percent of potential buyers of high-end homes in central London this year haven’t been seeking a primary residence, according to Beauchamp Estates founder Gary Hersham; most are looking for a second home or a rental property. Half are from abroad, particularly from the euro region, seeking to take advantage of the pound’s decline, he said. The British currency has lost about 10 percent of its value against the euro in the last 12 months.
“The flow of buyers from such places as the Gulf, Kazakhstan and Ukraine is constant,” said Hersham, who set up his Mayfair-based firm 30 years ago.
“The undoubted driver of strong price growth in recent months has been the return of the U.K. buyer, particularly those employed” in the City of London financial district, said Liam Bailey, Knight Frank’s head of residential research.
The proportion of U.K.-based buyers of 5 million-pound homes rose to 67 percent in the three months through October from 43 percent in the preceding three months, Knight Frank said.
Bonus Watch
Lindsay Cuthill, head of Savills’s chain of brokers in southwest London, said six weeks ago that he had started to receive more buying inquiries from bankers at Goldman Sachs Group Inc., JP Morgan Chase & Co., Barclays Plc and Morgan Stanley, four of the investment banks that best weathered the financial crisis. None of those has yet turned into a purchase, he said at a presentation yesterday.
Savills estimates that about 1.2 billion pounds of bonus payments for 2009 earnings may be invested in real estate, with about half going into rental properties in London and southeast England. It’s unclear how much of the payouts will be deferred or handed out as share options following government pressure to restrict cash bonuses.
“The big question over this year’s bonuses is ‘How will they be paid?’” said Yolande Barnes, head of residential research for Savills. The broker estimates that luxury values probably will fall 1 percent in 2010 after a 6.1 percent gain this year.
National Recovery
The gains in London’s luxury properties mirror signs of price recovery at a national level.
U.K. home prices registered their first annual gain in 19 months in October, Nationwide Building Society said last week. The average cost of a home increased 0.4 percent to 162,038 pounds, the sixth consecutive monthly increase, the mortgage lender said.
London accounts for 57 percent of the 183,630 U.K. houses and apartments worth more than 1 million pounds, according to property search Web site Zoopla.co.uk. Britain’s largest concentration of those is in Kensington, where the average price is 1.46 million pounds.
Knight Frank compiles its luxury index from estimated values on properties in the Mayfair, St. John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighborhoods of London.
To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.
Last Updated: November 6, 2009 08:00 EST
Nov. 6 (Bloomberg) -- Luxury-home prices in London had their smallest annual decline in 15 months in October on a shortage of properties for sale, Knight Frank LLP said.
The average value of houses and apartments costing more than 1 million pounds ($1.7 million) fell 3.2 percent from a year earlier, the seventh consecutive month of narrowing losses, the London-based property broker said. Prices increased 2.1 percent from September, the most since July 2007. That left values 16 percent below their March 2008 peak.
Luxury residences in neighborhoods like Chelsea, Kensington and Mayfair may return to peak prices in 2012, a year or two sooner than the rest of the U.K. housing market, Knight Frank and Savills Plc estimate. The pound’s 19 percent decline against a basket of currencies since the home market’s peak revived demand from foreign investors.
“The shortage of good property for sale is acute,” said Nathalie Hirst, the London head of Prime Purchase, which acts for wealthy buyers. “People have been able to hold onto their properties, so there haven’t been any forced sales.”
The Bank of England’s record-low benchmark interest rate of 0.5 percent eased pressure on homeowners to sell and reluctance among banks to repossess properties also limited the number of homes available.
Knight Frank estimates the number of luxury properties on sale for the first time fell almost 60 percent from October 2008, while the number of overseas buyers climbed 45 percent. The annual price decline was the smallest since July 2008.
Competing Bids
Two weeks ago, a buyer agreed to purchase an apartment near Hyde Park that’s been on Knight Frank’s books for 14 months. The initial asking price of 3.75 million pounds had been lowered to 3.45 million pounds before competition between buyers lifted the agreed price to 3.7 million pounds, said Rupert des Forges, head of the broker’s Knightsbridge office.
“The improved confidence and prices show the resilience of the prime London market,” he said. “Long-term investors have been waiting 10 years for this moment.”
The largest price gains were in Chelsea, Kensington and Notting Hill, Knight Frank said. It calculates that a 2 million- pound home in those neighborhoods appreciated by 1,340 pounds a day in the three months through October.
Second Homes
About 80 percent of potential buyers of high-end homes in central London this year haven’t been seeking a primary residence, according to Beauchamp Estates founder Gary Hersham; most are looking for a second home or a rental property. Half are from abroad, particularly from the euro region, seeking to take advantage of the pound’s decline, he said. The British currency has lost about 10 percent of its value against the euro in the last 12 months.
“The flow of buyers from such places as the Gulf, Kazakhstan and Ukraine is constant,” said Hersham, who set up his Mayfair-based firm 30 years ago.
“The undoubted driver of strong price growth in recent months has been the return of the U.K. buyer, particularly those employed” in the City of London financial district, said Liam Bailey, Knight Frank’s head of residential research.
The proportion of U.K.-based buyers of 5 million-pound homes rose to 67 percent in the three months through October from 43 percent in the preceding three months, Knight Frank said.
Bonus Watch
Lindsay Cuthill, head of Savills’s chain of brokers in southwest London, said six weeks ago that he had started to receive more buying inquiries from bankers at Goldman Sachs Group Inc., JP Morgan Chase & Co., Barclays Plc and Morgan Stanley, four of the investment banks that best weathered the financial crisis. None of those has yet turned into a purchase, he said at a presentation yesterday.
Savills estimates that about 1.2 billion pounds of bonus payments for 2009 earnings may be invested in real estate, with about half going into rental properties in London and southeast England. It’s unclear how much of the payouts will be deferred or handed out as share options following government pressure to restrict cash bonuses.
“The big question over this year’s bonuses is ‘How will they be paid?’” said Yolande Barnes, head of residential research for Savills. The broker estimates that luxury values probably will fall 1 percent in 2010 after a 6.1 percent gain this year.
National Recovery
The gains in London’s luxury properties mirror signs of price recovery at a national level.
U.K. home prices registered their first annual gain in 19 months in October, Nationwide Building Society said last week. The average cost of a home increased 0.4 percent to 162,038 pounds, the sixth consecutive monthly increase, the mortgage lender said.
London accounts for 57 percent of the 183,630 U.K. houses and apartments worth more than 1 million pounds, according to property search Web site Zoopla.co.uk. Britain’s largest concentration of those is in Kensington, where the average price is 1.46 million pounds.
Knight Frank compiles its luxury index from estimated values on properties in the Mayfair, St. John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighborhoods of London.
To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.
Last Updated: November 6, 2009 08:00 EST
UK property prices expected to fall in 2010 (excpet prime Central London) but strong growth from 2011 predicted by analysts
Friday, 06 November 2009 09:42 Ray Clancy UK - UK Property News
UK property prices will fall next year but outlook is positive
UK property prices will fall next year but the medium term outlook is positive with price increases of almost 30% by 2015, according to analysts.
The first forecasts for the next few years indicate that cash rich buyers that have been driving the price increases in 2009 will disappear in 2010. A general election and rising unemployment are among the factors that will put a damper on the residential market, the experts predict.
Savills today released its forecasts for both the prime and mainstream UK housing markets for the period 2010 to 2015.
‘The price growth of 2009 took most market commentators by surprise and few, if any, expected demand from equity rich buyers to return so strongly and so quickly, particularly in the mainstream. It is the imbalance between low supply and high cash-driven demand that has driven prices upwards. In mainstream markets, therefore, conditions are currently far from normal,’ explained Yolande Barnes, head of residential research at Savills.
As a result prices are expected to soften in 2010 as pent up demand from cash rich buyers will begin to be satisfied and stock shortages will ease. This could result in a brief period of headline grabbing price falls of up to 6.6% around the middle of the year point, with modest growth of around 2.7% in 2011, Barnes added.
The longer term prognosis though is for a return to price growth in mainstream markets, with the average UK house price values expected to rise by 27% from 2012 to 2015. This would leave the average UK house price just under £200,000, over 7.5% higher than at the peak of the market towards the end of 2007.
The prime market is expected to do better with price falls of around 1% in 2010 and an earlier return to sustained growth. Prime central London price growth is expected to total around 18% and 35% over the next 3 years and 5 years respectively, with equivalent figures of 14% and 30% in the prime regional and country house markets.
The latest forecast from Cluttons points to price increases of around 2% in 2010 in a best case scenario but falls of up to 5% if the economy performs badly. Central London prices are expected to fare better, with a slow growth of up to 3% next year.
‘We expect stock to increase in 2010, but with vendors’ pricing expectations still high, this may leave optimistic buyers frustrated, especially where mortgages are a significant part of financing purchases and restrictions remain tight on mortgage loan-to-values,’ said Andrew Stanford, head of Cluttons’ residential professional division.
Prices are expected to rise more from 2011, with the three following years seeing prices up by 3% to 4% per annum. ‘As interest rates remain low, the mortgage market will gradually recover. Values will be attractive for foreign currency buyers in London and good for UK buyers with equity to invest,’ he added.
Go to www.ipsinvest.com
UK property prices will fall next year but outlook is positive
UK property prices will fall next year but the medium term outlook is positive with price increases of almost 30% by 2015, according to analysts.
The first forecasts for the next few years indicate that cash rich buyers that have been driving the price increases in 2009 will disappear in 2010. A general election and rising unemployment are among the factors that will put a damper on the residential market, the experts predict.
Savills today released its forecasts for both the prime and mainstream UK housing markets for the period 2010 to 2015.
‘The price growth of 2009 took most market commentators by surprise and few, if any, expected demand from equity rich buyers to return so strongly and so quickly, particularly in the mainstream. It is the imbalance between low supply and high cash-driven demand that has driven prices upwards. In mainstream markets, therefore, conditions are currently far from normal,’ explained Yolande Barnes, head of residential research at Savills.
As a result prices are expected to soften in 2010 as pent up demand from cash rich buyers will begin to be satisfied and stock shortages will ease. This could result in a brief period of headline grabbing price falls of up to 6.6% around the middle of the year point, with modest growth of around 2.7% in 2011, Barnes added.
The longer term prognosis though is for a return to price growth in mainstream markets, with the average UK house price values expected to rise by 27% from 2012 to 2015. This would leave the average UK house price just under £200,000, over 7.5% higher than at the peak of the market towards the end of 2007.
The prime market is expected to do better with price falls of around 1% in 2010 and an earlier return to sustained growth. Prime central London price growth is expected to total around 18% and 35% over the next 3 years and 5 years respectively, with equivalent figures of 14% and 30% in the prime regional and country house markets.
The latest forecast from Cluttons points to price increases of around 2% in 2010 in a best case scenario but falls of up to 5% if the economy performs badly. Central London prices are expected to fare better, with a slow growth of up to 3% next year.
‘We expect stock to increase in 2010, but with vendors’ pricing expectations still high, this may leave optimistic buyers frustrated, especially where mortgages are a significant part of financing purchases and restrictions remain tight on mortgage loan-to-values,’ said Andrew Stanford, head of Cluttons’ residential professional division.
Prices are expected to rise more from 2011, with the three following years seeing prices up by 3% to 4% per annum. ‘As interest rates remain low, the mortgage market will gradually recover. Values will be attractive for foreign currency buyers in London and good for UK buyers with equity to invest,’ he added.
Go to www.ipsinvest.com
Melbourne tops for home prices
NOT only was Melbourne the strongest housing market in the country in the September quarter, it was also the strongest market in the country over the past 12 months. According to Australian Property Monitors' Quarterly House Price Report, released last month, Melbourne's median house price rose by 11.4 per cent in the 12 months to September, from $438,000 to $487,000.
The most expensive suburbs and regions performed best in the past six months, but they were essentially recovering from some large price falls in the first half of last year.
The outer regions were largely insulated from these falls, because of low mortgage rates and government incentives for first home buyers.
If we look at Melbourne by region, we can see it has been the outer regions, particularly the north and outer east, that have had the biggest increases in median prices.
In the north, which starts at Brunswick and extends up through Coburg North and past Gladstone Park, the median sale price for houses rose nearly 20 per cent in the past 12 months, from $329,000 to $392,000.
The outer east region, which is the most expensive region outside the inner city, also performed particularly well, with the median price rising more than 15 per cent to $461,000.
But don't expect these rates of growth to continue for long.
As the chart above shows, these one-year growth rates are well above their 10-year averages.
Source: The Age
The most expensive suburbs and regions performed best in the past six months, but they were essentially recovering from some large price falls in the first half of last year.
The outer regions were largely insulated from these falls, because of low mortgage rates and government incentives for first home buyers.
If we look at Melbourne by region, we can see it has been the outer regions, particularly the north and outer east, that have had the biggest increases in median prices.
In the north, which starts at Brunswick and extends up through Coburg North and past Gladstone Park, the median sale price for houses rose nearly 20 per cent in the past 12 months, from $329,000 to $392,000.
The outer east region, which is the most expensive region outside the inner city, also performed particularly well, with the median price rising more than 15 per cent to $461,000.
But don't expect these rates of growth to continue for long.
As the chart above shows, these one-year growth rates are well above their 10-year averages.
Source: The Age
Exploring The Merits Of UK Residential Property Funds
Wendy SpiresDeputy Editor
With investors still smarting from losses incurred during last year’s financial crisis many remain wary of complex financial instruments, preferring instead to invest in assets such as residential property where it is plain to see what the investment “does.”
In turbulent times investors understandably want their investments to be tangible and transparent, meaning that bricks and mortar have significant psychological appeal.
However, the time and stress involved in making a direct investment and managing a property are enough to put investors off – not to mention the fact that investing hundreds of thousands of pounds in a single property represents a risk that many would be unwilling to take.
This is where property funds come in - offering investors exposure to the asset class but without many of the drawbacks associated with direct investment.
An attractive alternative
One of the primary attractions of residential property funds is that they enable investors to gain exposure to the market at a lower level of investment. The minimum investment in residential property funds is typically around £10,000, making them an option which, according to Naomi Heaton, chief executive of property asset management firm London Central Portfolio (LCP), “can be vastly more attractive than settling a large sum of hard earned cash on a single asset.”
Investors are also attracted to the reduced risks of investing in a portfolio of properties rather than a single one, as no matter how well researched property investments can all too easily turn sour, leaving one burdened with a highly illiquid – and costly - asset.
But what is also extremely attractive about residential property funds is that they enable investors to avoid the inconvenient and undeniably stressful side of the buy to let story, such as arranging a mortgage, the hassle of the purchase process and the time-consuming subsequent management of the property.
While rental yields are undoubtedly attractive, being a landlord is certainly not for everyone.
Picking a prime location
As the plethora of television shows on the subject will testify, investing in residential property on a buy to let basis has been a popular practice for many years, but for every story of success there are many more instances of failure. As the credit crisis showed, markets can turn very quickly and the bottom can rapidly fall out of both property prices and rental rate. And here is where property fund managers can demonstrate the advantages of their expertise in terms of selecting properties which can withstand the vagaries of an uncertain economic climate.
A familiar mantra in property investment is that of “location, location, location” and it is clear from the number of fund launches in recent months that many view residential property in central London as having huge growth potential over and above the broader UK residential property market.
Like the rest of the UK, the central London property market took a drubbing amid last year’s financial turmoil, and while prices are recovering they still have some way to go before returning to pre-crisis levels. The latest figures from the UK Land Registry show that average property prices in central London rose by nearly 7 per cent over the third quarter, but they still lag some 6 per cent on Q3 2008 levels. Currently depressed prices and a consensus that a significant uptick is just around the corner mean that investors will have to move fast to capitalise on a recovery which many predict will see prices rebound dramatically in the near future.
London calling
Industry experts predict that central London will lead the way in the recovery of property prices. According to Martin Sherwood, director – head of tax efficient solutions at Smith & Williamson Investment Management, “all the stats point to prime central London recovering earlier than the rest of UK.” It is also worth noting that although central London property prices fell 15 per cent from peak to trough in 2008, at the same time UK commercial property prices fell some 32 per cent and the FTSE 100 plummeted by 43 per cent – figures which are a convincing testament to the relative resilience of central London property prices in the face of unprecedented economic trauma.
Central London is also noted for its low correlation to the wider national market, which, according to LCP’s Ms Heaton, “will continue to be dogged by economic problems for years to come.”
Several factors mark out central London as a special location for investment in residential property – one which is a specialist micro-market divorced from national trends. Despite the crisis London remains a world-leading financial centre and demand for housing from City workers remains correspondingly high.
As a truly international city London is also a popular location for second homes, attracting buyers and tenants from all over the world, and added to this the current weakness of sterling is also driving foreign investment. Coupled with this high demand is the fact that central London property is in short supply and this underpins both rental and capital values. These factors, according to Robert Guest, specialist funds and financial services lawyer at Beachcroft, mean that central London property should be regarded as a “unique asset class.”
A robust rental market
While several firms may be looking to capitalise on currently depressed property prices in central London, their approaches are markedly different. While Smith & Williamson and prominent property entrepreneurs Nick and Christian Candy have teamed up to launch a £100 million property fund focusing on luxury central London properties, LCP is taking a different tack, opting instead to concentrate on the professional rentals market.
LCP’s Residential Recovery Fund is, like the Candy Brothers fund, concentrating on London’s most prestigious postcodes, but rather than targeting the luxury sector will instead buy and renovate small flats designed for the corporate rental sector.
This market, according to Hugh Best, investment manager at LCP, has repeatedly proven to be the most robust, providing both strong capital appreciation and crucially consistent rental yields which service the gearing. Voids – or empty properties – are a notoriously costly hazard of property investment and in the view of Mr Best they represent a significant risk to funds investing in luxury properties.
“Our experience has shown that purchasing luxury property is not such a commercially viable strategy, generating lower yields, suffering from costly voids and in tougher economic times a scarcity of sufficiently affluent tenants,” he said. In contrast, occupancy in LCP’s managed property portfolio remained at 94 per cent throughout the credit crisis.
Maximising profitability
Richard Cotton, former senior partner responsible for residential sales and letting services at property investment and management firm Cluttons, is similarly sceptical of the London luxury property market. In his view, the top end luxury market is “a small one and should probably be left”, as should investment in the student and social housing markets.
The “single affluent” sector is the market with the greatest potential, according to Mr Cotton, as not only are these tenants reliable, but the costs of property refurbishment are more manageable as a commercial rather than luxurious finish is required. However, Mr Sherwood of Smith & Williamson remains convinced of the merits of luxury property investment in London, citing property research sources which predict a 40 per cent uplift in luxury property prices over the next five years.
He also highlights the fact that the Candy and Candy fund is targeting capital appreciation over rental yield and that there are many ways to foster this.., including structural enhancement to properties and adding value through high-end exclusive design. Along with currently depressed prices in the luxury property market the weakness of sterling is a further enticement to foreign investment, Mr Sherwood added, saying that now is “perhaps a unique opportunity to get into the prime central London market.”
Regardless of the target market, and whether capital appreciation or stable rental yields are prioritised, a large part of the job of property fund managers is to seek out the best-priced properties for their portfolio. According to Mr Sherwood, one of the keys to the successful management of residential property funds is cost control – and this of course starts with being able to hunt out properties at the best price in relation to their underlying value. Mr Sherwood also notes that the fact that there is a wealth of market information available on property prices does not necessarily limit the potential for bargains to be found, rather it depends on quality of the manager and their ability to “do the deals.”
Ms Heaton of LCP also emphasises the importance of specialist property expertise as another factor which can make property funds a better option than direct investment. “Bargains are not achieved by access to market data, but on the ground knowledge of the market. An eye for added value potential, a clear understanding of the tenant market, achievable rents, market yields and the costs of refurbishment will determine whether a property is a good buy, and indeed worth buying at all. Bargains are achieved by having all the right contacts and hearing about good property first,” she said.
Securing both good capital appreciation and consistent rental yields from a property portfolio is then no small order and so investors need to ensure that their chosen firm has the necessary expertise. As George Hankinson LCP’s managing director puts it, “Residential funds open up a huge new opportunity for investors wishing to access London central. However, investors need to be sure that their fund manager has a proven track record and is not simply jumping on the bandwagon of opportunism.”
That said, investors looking to capitalise on the potential of central London residential property will have to move fast before a price recovery really takes hold. LCP itself predicts that central London residential property prices are set to exceed pre-crisis levels in 2010 and in view of this fact the firm is due to close its Residential Recovery Fund at the end of December. “We think prices have bottomed out and are now really starting to boot upwards; liquidity is easing, and buyers will start to come back from here on in, but our fund will be there before them. Our investors are on board and we will have bought a prime portfolio before the spring market even picks up,” said Ms Heaton.
www.wealthbriefing.com
Financing, Tax and Returns
The London Recovery Fund is a tax efficient capital growth Fund enabling UK investors to hold it through their SIPPs and offshore investors to benefit from CGT and Inheritance Tax exemptions. It is geared at a phenomenal borrowing rate of just 1% over UK Base Rate*, a rate that most private investors could not possibly access. It is targeted to return 15% growth p.a. doubling an investor’s equity in just 5 years.
South African Solution
International Property Solutions (IPS) has strategically partnered with London Central Portfolio (LCP) to provide an effective solution to take advantage of the current conditions in the UK, specifically the best suburbs of London. With a very low entry point (£10 000), we buy discounted properties, renovate them and then let them out to Blue Chip corporate tenants in areas like Kensington, Chelsea, Belgravia, Notting Hill, etc
IPS provides solutions for people to invest internationally and are constantly looking for “Best of Breed” partners to strategically partner with so that investors can take advantage of great opportunities in prime markets.
Scott Picken, IPS CEO made his first money in London buying property, renovating and renting out the properties. He says, “I was so excited when we partnered with LCP as it provides the perfect solution for investing in London and best of all they have 20 years experience in some of the best real estate globally!”
IPS have been appointed the Head of South African Relations for the London Recovery Fund and will be monitoring the progress of acquisitions, refurbishment, rentals, etc, right through to the sale of the Fund in a few years’ time.
Download the Fund Quick Facts, contact scott@ipsinvest.com or visit www.ipsinvest.com or telephone Scott Picken on +27 (0) 11 463 0588 or +44 (0) 203 1399 018
With investors still smarting from losses incurred during last year’s financial crisis many remain wary of complex financial instruments, preferring instead to invest in assets such as residential property where it is plain to see what the investment “does.”
In turbulent times investors understandably want their investments to be tangible and transparent, meaning that bricks and mortar have significant psychological appeal.
However, the time and stress involved in making a direct investment and managing a property are enough to put investors off – not to mention the fact that investing hundreds of thousands of pounds in a single property represents a risk that many would be unwilling to take.
This is where property funds come in - offering investors exposure to the asset class but without many of the drawbacks associated with direct investment.
An attractive alternative
One of the primary attractions of residential property funds is that they enable investors to gain exposure to the market at a lower level of investment. The minimum investment in residential property funds is typically around £10,000, making them an option which, according to Naomi Heaton, chief executive of property asset management firm London Central Portfolio (LCP), “can be vastly more attractive than settling a large sum of hard earned cash on a single asset.”
Investors are also attracted to the reduced risks of investing in a portfolio of properties rather than a single one, as no matter how well researched property investments can all too easily turn sour, leaving one burdened with a highly illiquid – and costly - asset.
But what is also extremely attractive about residential property funds is that they enable investors to avoid the inconvenient and undeniably stressful side of the buy to let story, such as arranging a mortgage, the hassle of the purchase process and the time-consuming subsequent management of the property.
While rental yields are undoubtedly attractive, being a landlord is certainly not for everyone.
Picking a prime location
As the plethora of television shows on the subject will testify, investing in residential property on a buy to let basis has been a popular practice for many years, but for every story of success there are many more instances of failure. As the credit crisis showed, markets can turn very quickly and the bottom can rapidly fall out of both property prices and rental rate. And here is where property fund managers can demonstrate the advantages of their expertise in terms of selecting properties which can withstand the vagaries of an uncertain economic climate.
A familiar mantra in property investment is that of “location, location, location” and it is clear from the number of fund launches in recent months that many view residential property in central London as having huge growth potential over and above the broader UK residential property market.
Like the rest of the UK, the central London property market took a drubbing amid last year’s financial turmoil, and while prices are recovering they still have some way to go before returning to pre-crisis levels. The latest figures from the UK Land Registry show that average property prices in central London rose by nearly 7 per cent over the third quarter, but they still lag some 6 per cent on Q3 2008 levels. Currently depressed prices and a consensus that a significant uptick is just around the corner mean that investors will have to move fast to capitalise on a recovery which many predict will see prices rebound dramatically in the near future.
London calling
Industry experts predict that central London will lead the way in the recovery of property prices. According to Martin Sherwood, director – head of tax efficient solutions at Smith & Williamson Investment Management, “all the stats point to prime central London recovering earlier than the rest of UK.” It is also worth noting that although central London property prices fell 15 per cent from peak to trough in 2008, at the same time UK commercial property prices fell some 32 per cent and the FTSE 100 plummeted by 43 per cent – figures which are a convincing testament to the relative resilience of central London property prices in the face of unprecedented economic trauma.
Central London is also noted for its low correlation to the wider national market, which, according to LCP’s Ms Heaton, “will continue to be dogged by economic problems for years to come.”
Several factors mark out central London as a special location for investment in residential property – one which is a specialist micro-market divorced from national trends. Despite the crisis London remains a world-leading financial centre and demand for housing from City workers remains correspondingly high.
As a truly international city London is also a popular location for second homes, attracting buyers and tenants from all over the world, and added to this the current weakness of sterling is also driving foreign investment. Coupled with this high demand is the fact that central London property is in short supply and this underpins both rental and capital values. These factors, according to Robert Guest, specialist funds and financial services lawyer at Beachcroft, mean that central London property should be regarded as a “unique asset class.”
A robust rental market
While several firms may be looking to capitalise on currently depressed property prices in central London, their approaches are markedly different. While Smith & Williamson and prominent property entrepreneurs Nick and Christian Candy have teamed up to launch a £100 million property fund focusing on luxury central London properties, LCP is taking a different tack, opting instead to concentrate on the professional rentals market.
LCP’s Residential Recovery Fund is, like the Candy Brothers fund, concentrating on London’s most prestigious postcodes, but rather than targeting the luxury sector will instead buy and renovate small flats designed for the corporate rental sector.
This market, according to Hugh Best, investment manager at LCP, has repeatedly proven to be the most robust, providing both strong capital appreciation and crucially consistent rental yields which service the gearing. Voids – or empty properties – are a notoriously costly hazard of property investment and in the view of Mr Best they represent a significant risk to funds investing in luxury properties.
“Our experience has shown that purchasing luxury property is not such a commercially viable strategy, generating lower yields, suffering from costly voids and in tougher economic times a scarcity of sufficiently affluent tenants,” he said. In contrast, occupancy in LCP’s managed property portfolio remained at 94 per cent throughout the credit crisis.
Maximising profitability
Richard Cotton, former senior partner responsible for residential sales and letting services at property investment and management firm Cluttons, is similarly sceptical of the London luxury property market. In his view, the top end luxury market is “a small one and should probably be left”, as should investment in the student and social housing markets.
The “single affluent” sector is the market with the greatest potential, according to Mr Cotton, as not only are these tenants reliable, but the costs of property refurbishment are more manageable as a commercial rather than luxurious finish is required. However, Mr Sherwood of Smith & Williamson remains convinced of the merits of luxury property investment in London, citing property research sources which predict a 40 per cent uplift in luxury property prices over the next five years.
He also highlights the fact that the Candy and Candy fund is targeting capital appreciation over rental yield and that there are many ways to foster this.., including structural enhancement to properties and adding value through high-end exclusive design. Along with currently depressed prices in the luxury property market the weakness of sterling is a further enticement to foreign investment, Mr Sherwood added, saying that now is “perhaps a unique opportunity to get into the prime central London market.”
Regardless of the target market, and whether capital appreciation or stable rental yields are prioritised, a large part of the job of property fund managers is to seek out the best-priced properties for their portfolio. According to Mr Sherwood, one of the keys to the successful management of residential property funds is cost control – and this of course starts with being able to hunt out properties at the best price in relation to their underlying value. Mr Sherwood also notes that the fact that there is a wealth of market information available on property prices does not necessarily limit the potential for bargains to be found, rather it depends on quality of the manager and their ability to “do the deals.”
Ms Heaton of LCP also emphasises the importance of specialist property expertise as another factor which can make property funds a better option than direct investment. “Bargains are not achieved by access to market data, but on the ground knowledge of the market. An eye for added value potential, a clear understanding of the tenant market, achievable rents, market yields and the costs of refurbishment will determine whether a property is a good buy, and indeed worth buying at all. Bargains are achieved by having all the right contacts and hearing about good property first,” she said.
Securing both good capital appreciation and consistent rental yields from a property portfolio is then no small order and so investors need to ensure that their chosen firm has the necessary expertise. As George Hankinson LCP’s managing director puts it, “Residential funds open up a huge new opportunity for investors wishing to access London central. However, investors need to be sure that their fund manager has a proven track record and is not simply jumping on the bandwagon of opportunism.”
That said, investors looking to capitalise on the potential of central London residential property will have to move fast before a price recovery really takes hold. LCP itself predicts that central London residential property prices are set to exceed pre-crisis levels in 2010 and in view of this fact the firm is due to close its Residential Recovery Fund at the end of December. “We think prices have bottomed out and are now really starting to boot upwards; liquidity is easing, and buyers will start to come back from here on in, but our fund will be there before them. Our investors are on board and we will have bought a prime portfolio before the spring market even picks up,” said Ms Heaton.
www.wealthbriefing.com
Financing, Tax and Returns
The London Recovery Fund is a tax efficient capital growth Fund enabling UK investors to hold it through their SIPPs and offshore investors to benefit from CGT and Inheritance Tax exemptions. It is geared at a phenomenal borrowing rate of just 1% over UK Base Rate*, a rate that most private investors could not possibly access. It is targeted to return 15% growth p.a. doubling an investor’s equity in just 5 years.
South African Solution
International Property Solutions (IPS) has strategically partnered with London Central Portfolio (LCP) to provide an effective solution to take advantage of the current conditions in the UK, specifically the best suburbs of London. With a very low entry point (£10 000), we buy discounted properties, renovate them and then let them out to Blue Chip corporate tenants in areas like Kensington, Chelsea, Belgravia, Notting Hill, etc
IPS provides solutions for people to invest internationally and are constantly looking for “Best of Breed” partners to strategically partner with so that investors can take advantage of great opportunities in prime markets.
Scott Picken, IPS CEO made his first money in London buying property, renovating and renting out the properties. He says, “I was so excited when we partnered with LCP as it provides the perfect solution for investing in London and best of all they have 20 years experience in some of the best real estate globally!”
IPS have been appointed the Head of South African Relations for the London Recovery Fund and will be monitoring the progress of acquisitions, refurbishment, rentals, etc, right through to the sale of the Fund in a few years’ time.
Download the Fund Quick Facts, contact scott@ipsinvest.com or visit www.ipsinvest.com or telephone Scott Picken on +27 (0) 11 463 0588 or +44 (0) 203 1399 018
Tuesday, November 24, 2009
South Africa exits recession, Q3 GDP up 0.9 pct q/q
PRETORIA (Reuters) - South Africa's economy exited its first recession in almost two decades, growing by 0.9 percent in the third quarter on a seasonally adjusted and annualised basis, Statistics South Africa said on Tuesday.
Analysts said the better-than-expected GDP figure for the third quarter meant the country's monetary loosening cycle was over.
The third quarter growth came after three consecutive quarters of decline and from a revised decline of 2.8 percent in the second quarter, better than the 3.0 percent first estimate.
On an unadjusted basis, the economy fell by 2.1 percent year-on-year.
The unadjusted real GDP for the first 9 months of 2009 was down 1.8 pct on the same period last year, pointing to a contraction for the year roughly in line with the Treasury's forecast of a 1.9 percent fall.
A Reuters poll of 17 economists last week showed the GDP number was expected to come in at a rise of 0.2 percent on a seasonally adjusted quarterly basis and fall by 2.7 percent on an unadjusted year-on-year basis.
Statistics South Africa also revised annual economic growth for 2008 upwards to 3.7 percent and 5.5 percent for 2007. The agency said the economy grew by 5.6 percent in 2006.
"The short-term indicators seem to tell us that the economy is picking up but long-term indicators tell us the economy is still (weak)," said Joe De Beer, head of economic analysis and research at Stats SA.
Stats SA rebased and benchmarked GDP to 2005 and included illegal activities such as drugs trade and prostitution for the first time. It said these activities only added about 3.5 billion rand to the economy, 0.2 percent of GDP.
"South Africa's better-than-expected GDP outcome closes the door on any further interest rate cuts, and potentially brings the timing of the first rate hike closer," said Annabel Bishop, economist at Investec.
The central bank has since December cut interest rates by 5 percentage points to help stimulate the economy and left rates unchanged at its three previous meetings.
She added however that "a sharp, V-shaped recovery is still unlikely" due to the country's heavy dependence on global demand and the high job losses and company failures locally.
The rand firmed slightly after the data, trading at 7.4875 against the dollar at 1010 GMT, compared to 7.51 before the figures were released. The yield on the 2015 government bond fell to 8.45 percent from 8.46 percent.’
Analysts said the better-than-expected GDP figure for the third quarter meant the country's monetary loosening cycle was over.
The third quarter growth came after three consecutive quarters of decline and from a revised decline of 2.8 percent in the second quarter, better than the 3.0 percent first estimate.
On an unadjusted basis, the economy fell by 2.1 percent year-on-year.
The unadjusted real GDP for the first 9 months of 2009 was down 1.8 pct on the same period last year, pointing to a contraction for the year roughly in line with the Treasury's forecast of a 1.9 percent fall.
A Reuters poll of 17 economists last week showed the GDP number was expected to come in at a rise of 0.2 percent on a seasonally adjusted quarterly basis and fall by 2.7 percent on an unadjusted year-on-year basis.
Statistics South Africa also revised annual economic growth for 2008 upwards to 3.7 percent and 5.5 percent for 2007. The agency said the economy grew by 5.6 percent in 2006.
"The short-term indicators seem to tell us that the economy is picking up but long-term indicators tell us the economy is still (weak)," said Joe De Beer, head of economic analysis and research at Stats SA.
Stats SA rebased and benchmarked GDP to 2005 and included illegal activities such as drugs trade and prostitution for the first time. It said these activities only added about 3.5 billion rand to the economy, 0.2 percent of GDP.
"South Africa's better-than-expected GDP outcome closes the door on any further interest rate cuts, and potentially brings the timing of the first rate hike closer," said Annabel Bishop, economist at Investec.
The central bank has since December cut interest rates by 5 percentage points to help stimulate the economy and left rates unchanged at its three previous meetings.
She added however that "a sharp, V-shaped recovery is still unlikely" due to the country's heavy dependence on global demand and the high job losses and company failures locally.
The rand firmed slightly after the data, trading at 7.4875 against the dollar at 1010 GMT, compared to 7.51 before the figures were released. The yield on the 2015 government bond fell to 8.45 percent from 8.46 percent.’
Monday, November 9, 2009
House price inflation resumes
ABSA Housing Index – 4th November 2009
After almost a year of nominal year-on-year house price deflation in the South African housing market, some price inflation was recorded in the past two months, according to Absa’s calculations. Based on recent price trends, it was expected that annual nominal price growth would resume shortly. On the back of these developments as well as declining consumer price inflation in recent months, real price deflation slowed down further in September.
House prices in the middle-segment (see explanatory notes) were up by a nominal 2,6% year-on-year (y/y) to R991 200 in October 2009, after rising by a revised 1,3% y/y in September. Month-on-month price inflation came to 1,1% in October. In real terms, house prices in the middle segment of the market were down by 4,6% y/y in September (-6% y/y in August).
The average nominal price of small houses (80m²-140m²) were down by a nominal 3,1% y/y in October, compared with a decline of 3,6% y/y recorded in September after revision. This brought the average nominal price of small houses to about R657 200 in October. In real terms, the average price of houses in this segment was 9,2% y/y lower in September, after declining by a revised 9,8% y/y in August.
In the category of medium-sized houses (141m²-220m²), the average nominal price declined by 4,4% y/y in October (-4,5% y/y in September after revision), which brought prices in this segment to around R908 300. Taking account of inflation, this resulted in a real price decline of 10,1% y/y in September, unchanged from August.
Nominal price growth in respect of large houses (221m²-400m²) accelerated to 3,2% y/y in October this year, after increasing by a revised 2,6% y/y in the preceding month. This caused the average nominal price to rise to R1 417 400 in October.
The average price of large houses was down by a real 3,3% y/y in September, compared with a drop of 4,2% y/y in August. The latest trends with regard to house prices are encouraging, which are based on a further rise in transaction volumes in October, compared with September. This came after transaction volumes appear to have bottomed in August this year.
Despite massive job losses recorded in the third quarter of 2009, there are indications from various economic indicators, such as the South African Reserve Bank’s leading and coincident business cycle indicators, that the economy is on its way to recovery. Although the household sector is still very much under pressure on the back of declining employment, while real disposable income growth is negative territory, housing market conditions are expected to improve further towards the end of the year and into 2010. Better economic conditions, as well as banks’ less tight lending criteria and the lagged effect of lower interest rates, will provide much needed support to the property market during the course of the next twelve months.
Taking account of house price trends in the first ten months of 2009, nominal price deflation of less than 1,5% seems possible for the full year compared with 2008. Average nominal house price growth of up to 3% in 2010 is attainable if the latest trends prove to be sustainable. Real price deflation of around 8% is forecast for 2009, while prices may decline further in real terms next year on the back of nominal house price and inflation projections.
After almost a year of nominal year-on-year house price deflation in the South African housing market, some price inflation was recorded in the past two months, according to Absa’s calculations. Based on recent price trends, it was expected that annual nominal price growth would resume shortly. On the back of these developments as well as declining consumer price inflation in recent months, real price deflation slowed down further in September.
House prices in the middle-segment (see explanatory notes) were up by a nominal 2,6% year-on-year (y/y) to R991 200 in October 2009, after rising by a revised 1,3% y/y in September. Month-on-month price inflation came to 1,1% in October. In real terms, house prices in the middle segment of the market were down by 4,6% y/y in September (-6% y/y in August).
The average nominal price of small houses (80m²-140m²) were down by a nominal 3,1% y/y in October, compared with a decline of 3,6% y/y recorded in September after revision. This brought the average nominal price of small houses to about R657 200 in October. In real terms, the average price of houses in this segment was 9,2% y/y lower in September, after declining by a revised 9,8% y/y in August.
In the category of medium-sized houses (141m²-220m²), the average nominal price declined by 4,4% y/y in October (-4,5% y/y in September after revision), which brought prices in this segment to around R908 300. Taking account of inflation, this resulted in a real price decline of 10,1% y/y in September, unchanged from August.
Nominal price growth in respect of large houses (221m²-400m²) accelerated to 3,2% y/y in October this year, after increasing by a revised 2,6% y/y in the preceding month. This caused the average nominal price to rise to R1 417 400 in October.
The average price of large houses was down by a real 3,3% y/y in September, compared with a drop of 4,2% y/y in August. The latest trends with regard to house prices are encouraging, which are based on a further rise in transaction volumes in October, compared with September. This came after transaction volumes appear to have bottomed in August this year.
Despite massive job losses recorded in the third quarter of 2009, there are indications from various economic indicators, such as the South African Reserve Bank’s leading and coincident business cycle indicators, that the economy is on its way to recovery. Although the household sector is still very much under pressure on the back of declining employment, while real disposable income growth is negative territory, housing market conditions are expected to improve further towards the end of the year and into 2010. Better economic conditions, as well as banks’ less tight lending criteria and the lagged effect of lower interest rates, will provide much needed support to the property market during the course of the next twelve months.
Taking account of house price trends in the first ten months of 2009, nominal price deflation of less than 1,5% seems possible for the full year compared with 2008. Average nominal house price growth of up to 3% in 2010 is attainable if the latest trends prove to be sustainable. Real price deflation of around 8% is forecast for 2009, while prices may decline further in real terms next year on the back of nominal house price and inflation projections.
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