This week in circularity, from China:
Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders.
Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank.
From the FT:
China’s central bank and one of its largest state lenders are holding emergency talks over whether or not to bail out a defaulting real estate developer…
In a case which offers a microcosm of the cracks emerging in China’s shadow banking system, Zhejiang Xingrun Real Estate, the provincial developer, had been offering usurious rates of interest to individuals after being shut out by conventional banks.
Officials from the government of Fenghua, a town in eastern china with a population of about 500,000, the People’s Bank of China and China Construction Bank, which was the main lender to the developer, were on Tuesday thrashing out ways to repay the company’s Rmb3.5bn ($566m) of debt.
Local government officials were keen to downplay the fate of the troubled developer, Zhejiang Xingrun Real Estate, which quickly added fuel to markets already jittery after Chaori, the solar cell maker, this month became China’s first bond default.
Who on earth could have seen trouble in the property market coming… Read more
Late last year we speculated that if anything was going to disrupt the London property bull market it was going to be a grand exodus, motivated by the economically viable population realising that they could nowadays live and work quite happily outside of city perimeters. You know, the internet and all that.
Knight Frank’s latest wealth report, to be released on Wednesday, has decided that the greatest disruption to established property wealth centres may come from extra-terrestrial advances instead. Read more
We’ve had a look at the relationship between London houses and their occupants before. But a line from “leading economic forecaster” Harry Dent in a interview with the Guardian made us want to go and check out the stats:
“We’ve had bubbles throughout our time – oil, gold, stocks. But China is the biggest bubble in modern history. It’s 30% overbuilt in everything and has huge over-investment. The housing market is valued at 28 to 35 times income in the major cities. London, by way of contrast, is 15 times”.
That sounds like a lot, and it turns out that Greater London overall isn’t quite that expensive. But if you want to go area by area, what is clear is that some parts of the capital are priced well beyond the incomes of most people who live there. Read more
Let’s start the year with a big chart. You may have picked up political rumblings of dissatisfaction in the UK with its commercial housebuilders who, it has been suggested, might be more interested in maximizing profits than building the minimum number of houses the country requires.
Recall the strange protestation signed by almost all of them just before Christmas, designed to reassure that Brits will have a chance to stump up for a new house before any deep pocketed foreigner gets the tour.
But the endless housing debate deserves some much needed context. It arrives via James Meek in the London Review of Books, who spotted this chart published in the 2011 self-build manifesto from the University of Sheffield School of Architecture and Architecture 00:/ (yes that is their name, click to enlarge): Read more
UK home-builders trying to move ahead of the political wind on foreign investors buying up London property?
In any case, though we missed this on Wednesday it seems part of the Zeitgeist — eleven of them agreed not to sell UK (read: London) new-builds abroad before they go on the domestic market from next year: Read more
Congratulations Professor Shiller (and Profs Fama and Hansen)!
Let’s celebrate with a quick return to the property market, where he who would not be bullish made his name, in the popular imagination at least. Read more
There was just one detail missing from the exquisite tale of the repossessed flat now on offer at London’s most hideous luxurious residence. The owner.
Well — after perusing this “exciting opportunity” to own 988 sq ft of One Hyde Park — note the apartment number… Read more
Time for some property porn.
It comes from the 2013 Demographia International Housing Affordability Survey – a piece of work often quoted by bubble hunters and rubbished by the property bulls who babble on about flawed methodology. Read more
Ireland: Eurostat is withdrawing a specific reservation, expressed in April 2012, on the data reported by Ireland, relating to the statistical classification of National Asset Management Agency Investment Limited (NAMA-IL). On the basis of documents provided by the Central Statistics Office of Ireland, NAMA-IL is majority privately-owned, following the sale by Irish Life of its stake in NAMA-IL to a private investor. This is a necessary condition for a special purpose entity to be classified outside the General Government sector, pursuant to Eurostat’s decision of 15 July 2009 on public interventions during the financial crisis.
That’s from Monday’s Eurostat release on European government debts and deficits. Monday, perhaps not coincidentally, also saw names put on the announced sale of Irish Life’s 17 per cent stake in Nama Investment Ltd. Read more
“Immobilie porn”, suggests Google Translate but we’re open to correction.
Either way, this piece from the FT on Tuesday makes for good reading. It suggests there may be a bubble building in the German property market with Berlin in particular looking peaky, although that must be caveated with the relatively sedate nature of the market previously. Read more
A chart from Jones Lang LaSalle about who’s investing in London property:
Don’t say we never do anything nice for you. We found four positive signs this week, and while at least three of them might raise more questions than they answer, China bulls should probably just enjoy the moment.
1. New loans data for August looks positive Read more
And why Norway’s property market is still looking ever so slightly peaky.
First, some charts courtesy of Alan Ruskin at Deutsche Bank which point to those countries which maybe haven’t seen the end of their house-price pains. The first chart shows the pain already taken: Read more
For anyone who’s ever looked at the Chinese property boom and had the phrase ‘Ireland of Asia’ cross your mind… this one’s for you.
Here’s a computer-generated pic of a “Euro Chinese Trading Hub” which could be coming soon to the Irish town of Athlone (pop. 20,138): Read more
Uh oh. This can’t be good.
From SocGen’s cross asset research team on Monday (our emphasis): Read more
Vacancy rates on the worst British high streets could hit 50 per cent within three years, as half of all high street leases are due to expire by 2015, says the FT. Research by Jones Lang LaSalle, the property consultancy, showed that record numbers of shop leases are coming up for renewal, predicting that retailers in badly hit areas will walk away from stores when given the opportunity to get out of contracts. Separately, the FT says a record for the most expensive shop rent in the UK has been set with Italian fashion brand Salvatore Ferragamo agreeing to pay nearly £1,000 a square foot a year for part of its space on Bond Street in a sign of rising demand for a presence on London’s most prestigious shopping thoroughfare.
Foreign first-time-buyers are clambering to get into the London office market as sovereign wealth funds and cash-rich individuals seek stable assets amid the uncertainty in the global financial markets. The FT says research from Knight Frank, the property group, shows overseas investors making their maiden investment in the central London office market accounted for a third of the £9.1bn spent last year, while foreign buying accounted for 60 per cent of the overall investment. The surge in entrants to the London property market follows years of growing investment from the traditional economic powerhouses of the Middle East and Asia. Last year was the first in which property in the City of London became majority owned by foreign institutions.
Still confused by China’s better than expected GDP numbers? (Especially given stories like this, and this, and this?)
You’re not the only ones. Read more
British banks and insurers are pouring billions into the country’s housing stock as they look to cash in on rising rents and find wealth stores away from the turmoil rippling through the markets, reports the FT. Financial institutions ploughed £2.2bn into houses and apartments in the UK during the 12 months to April this year, according to data released by Her Majesty’s Revenue & Customs. The spend represents a 189 per cent increase on the same period a year earlier and comes as wealthy individuals from around the world flock to buy upmarket property in the UK. During the same period, specialist property companies increased purchases of residential stock by 27 per cent to £7.5bn, while private individuals spent £193.8bn, up 24 per cent on a year earlier.
The southern Chinese city of Zhuhai has introduced restrictions on housing purchases in a sign of the government’s resolve to rein in the property market, reports the FT. The move on Tuesday came even though prices have started to decline across much of the country. Similar restrictions have been rolled out in other big cities since last year, including limits on the number of units households can buy, curbs on purchases by non-residents and caps on the amount developers can charge for apartments. But a big drop in sales volumes and recent price falls in leading markets had led many to assume Beijing would start to ease restrictions. Shares in most leading Hong Kong-listed Chinese property developers rebounded by between 30 and 80 per cent in the fortnight to last Friday on expectations of imminent easing, although most were still down by more than a third since the start of the year.
According to a statement following a State Council meeting chaired by Premier Wen Jiabao, China will “firmly” maintain its property curbs and “fine tune” other economic policies at an appropriate time, Bloomberg reports. The announcement saw Chinese stocks fall for the first time in six days. Among the names affected were Anhui Conch Cement, China’s biggest producer of the building material, which lost 1.6 per cent after the government said local authorities should strictly implement tight policies in the property industry in the coming months. Falls in Huaxia Bank and Bank of Communications, meanwhile, drove an index of financial companies to its first drop in more than a week. “It’s too early to celebrate after the rally as the government is still keeping its control policies,” said Tu Jun, a strategist at Shanghai Securities told Bloomberg. “The market may be range-bound at current levels and the uncertainty over policy easing will lead to volatility.”
The number of real-estate and construction companies seeking bankruptcy in England and Wales rose by 11 per cent in the third quarter as budget cuts and economic uncertainty led to canceled projects, according to research by Deloitte. Bloomberg reports that a total of 117 property companies and builders went into administration in the period, up from 105 a year earlier. Deloitte said medium-sized firms will be hurt more than larger contractors, and attributed the increase to rising energy prices and cuts to both private and public sector building projects. The next quarter would not bring any improvement, the company said.
And that would be not for currency, but property and equities.
If the low yields of Treasuries and Bunds are becoming too tedious for words, take a look at this in the FT: Read more
LaSalle Investment Management, one of the world’s biggest real estate fund managers, is set to warn that commercial property prices have risen on a “lack of caution” on the economic outlook, reports the FT. “Prime” markets in areas including London and Paris have seen a return to pre-crisis prices as investors look for safe havens. Demand for commercial property in New York and other coastal cities is also expected to increase on similar trends, Bloomberg reports – although these markets remain just as vulnerable to an economic downturn.
The Lehman Brothers estate is pushing ahead with plans to sell or list Archstone, the apartment company that it took private for $22bn near the zenith of the property boom, even as market ructions complicate discussions about how to proceed with Bank of America and Barclays, owners of sizeable stakes. People familiar with the matter told the FT the banks were working on documents for an initial public offering, which could be filed by the end of the month. JPMorgan Chase has been retained to assist with a possible float. The group has also started discussions about a potential sale of Archstone, which could be valued at as much as $20bn including debt, or just a stake, with a select group of potential buyers, those people said.
A leading European hedge fund is preparing to build one of London’s most expensive housing developments as global investors scramble to gain a foothold in the capital’s resurgent residential market, the FT reports. In a deal completed over the weekend, Orion Capital Managers acquired an acre of prime residential land in Chelsea. The fund plans to build a £300m ($493m) housing complex on the site, which is bought for £85m. It has planning consent in place for a building designed by Sir Norman Foster’s practice, with six apartments, a duplex penthouse and two detached villas, which are expected to price at between £25m-£35m ($41m-$57m). Knight Frank found the price of London luxury homes recorded their highest rise in July for six months, says Bloomberg, driven by the low pound and an aversion to mainland Europe.
The Crown Estate made a record profit in its last financial year, the FT reports, with net profit rising 9.6 per cent for the year to March 31 to £230.9m. The record profits came ahead of proposals that would give the royal family a direct cut from the revenues of the £7.3bn ($11.7bn) property portfolio, which are paid to the Treasury. George Osborne, the chancellor, last week confirmed proposals to replace the Civil List grant to the royal household that had been in place since 1760 with a 15 per cent share of the profits of the Crown Estate. The plans have raised the prospect of bumper pay-outs during good years in the property sector, although it will be 2013 at the earliest before this takes effect. The total capital value of the Crown Estate portfolio stands at £7.3bn, up 9.2 per cent on the previous year, with the property portfolio exceeding £7bn for the first time.
David and Simon Reuben, the billionaire entrepreneurs, have paid about £130m ($208m) in cash for the Piccadilly Estate, the former home of the “In and Out” club in London’s West End. The FT says the deal brings to an end a long-running process in which the Grade-I listed building on Piccadilly and its surrounding 1.3-acre estate came close to a sale several times in the past year. It was previously owned by the family trusts of Simon Halabi, the property investor. The estate comprises six freehold buildings, which have a planning consent for a six-star hotel and private members’ club. However, property agents said higher values might be obtained from turning the buildings into residential, which could command some of the highest prices in London given the central location opposite Green Park.
A mood of austerity may be stalking Britain, but the champagne is still flowing at Buckingham Palace thanks to a government plan to put the queen on what might be seen as profit-related pay, the FT reports. George Osborne, the chancellor, has proposed to do away with government grants to the royal household – first introduced in 1760 when George III agreed to transfer income from Crown lands to the government. They will be replaced with a 15 per cent share of the profit that the Crown Estate pays into national accounts. This would put the royal family in line to earn about £34m ($55m) from the property portfolio when the first payment is made in April 2013, roughly the same amount it received from government last year. But it could result in a bumper pay-out in a good year for the Crown Estate, which has a £6.6bn property and land portfolio that includes parts of London’s West End and the entire UK seabed up to 12 nautical miles offshore.