Yes, yes, we know, people will keep buying property in London no matter the price, no matter the Brexit, no matter the sheer insanity of it all.
But, there’s a credible bear case to be made that regulatory and tax changes in the buy-to-let market — known colloquially as the ‘evil landlord’ sector — are about to prick what has become a very sizeable bubble.
Last week, Deutsche Bank analysts Oliver Reiff and Markus Scheufler made that case over about 70 pages, arguing that for any rational investor, the economics of buying London property have been hammered. Read more
How many estate agents can the capital handle? We wonder because it turns out that Foxton’s plans to double in size, again, all while remaining well inside the M25.
We noticed this part of the plan after Credit Suisse published its thoughts on our post that several standard estate agent practices might be illegal and in the sights of the Office of Fair Trading. (Spoiler: turns out it is actually good for Foxtons and Countrywide). Read more
Just as the world was about to launch an inquisition into the prime property witch phenomenon — roughly: if the property fails to rent, the super-prime investor is obviously a witch and must pay additional tax, but if the property rents they’re not a witch, but they still have to pay additional tax — the Knight of Frank comes bearing some interesting global prime statistics.
From the developer’s Prime Global Cities cauldron on Tuesday: Read more
The Swiss National Bank on Thursday reiterated its commitment to maintaining a minimum exchange rate for the Swiss franc, noting that in its opinion the currency was still strong.
Inflation numbers were slightly better, though not enough to encourage a shift in the SNB’s long term inflation forecast, which remained unchanged for 2015 at 0.7 per cent. Read more
The latest bank-sovereign crisis always gets the most attention. Despite the best of intentions, no amount of preparation can get the current flair-up ready to have its place in the limelight stolen. Once torn, salt is rubbed into the wound by means of nasty comparisons that disrespect the unique nature of one’s distress. Ireland is not Greece! Portugal is not Ireland! Italy is not Spain! And Cyprus is special because of gangsta finance and its reliance on deposits for funding…
Grow up. Everyone has problems.
That said, we’ve carved out a special place in our schedules this morning to spend some quality time with one of the middle children. Aren’t we good? And so to the Netherlands, where the government nationalised SNS Reaal, the parent company of SNS Bank, on February 1st. It used its shiny new Intervention Act and everything. Read more
One of the tentative signs of improvement in China’s economy in the past few months has been the apparent reduction in inventory of residential apartments.
Real estate investment was responsible for about 13 per cent of China’s GDP last year, and is a key destination for financially-repressed Chinese household savings, so it’s an important sector. Read more
Remember Chinese property? How there was a boom in apartment building that amounted to some 10 per cent of GDP, and now there are gazillions of investment apartments sitting empty, and local governments got really hooked on the revenues from land sales, and it all fueled the development of weird and dodgy securitisations which offered a tempting alternative to letting one’s savings lose value in a deposit account? Read more
Net profit at Spain’s Santander, the eurozone’s biggest bank by market capitalisation, fell 35 per cent last year to €5.35bn from €8.18bn in 2010 as the Spanish property market collapse and the eurozone debt crisis continued to erode earnings, the FT reports. Santander released results on Tuesday showing it barely made a profit in the final quarter of last year – net profit was €47m compared to €2.10bn a year earlier – after it set aside a €1.81bn fourth-quarter gross charge to clean up bad property loans in Spain. Over the year as a whole, the bank made total net extraordinary provisions of €3.18bn, largely because it is anticipating new provisioning rules likely to be announced on Friday by the centre-right government that took power in Spain in December. Bloomberg reports that the bank previously said it had about €1.5bn in gains from sales of insurance and auto loans unit stakes in the Americas to bolster its balance sheet. Santander has used those funds to partly offset the one-time provisions.
Here’s an interesting exercise from Fitch — they’ve counted up 8,235 properties which were repossessed in Spanish RMBS that they rated.
These are some of their findings: Read more
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.
Blackstone is in exclusive talks to buy $1bn of Merrill Lynch’s real estate investments from Bank of America, the FT reports. The sale, which according to people familiar with the matter is still weeks away, would comprise unwanted property investments in Europe, the US and South America, including logistics properties in central Europe, shopping centres in Germany and a Brazilian housing developer. Merrill invested in the assets, often alongside third parties, before the 2008 bust. The sale is part of the bank’s wider efforts to dispose of non-core assets and would effectively conclude the real estate portion of its winding down of assets in its principal investments unit, backed by BofA’s own capital.
It seemed too good to last… and it was.
Lloyds Banking Group has bucked the trend in the UK banks sector and reported a disappointing set of half year figures. Read more
As FT Alphaville and others have duly noted, the search for the ultimate safe haven alternative is on.
RBS now points to one possible alternative, London luxury-home prices. Read more
Phew..! What a relief.
The Chinese danger is no more.
During the Spanish boom of 2004-2008 the country started construction of about 3.26m new houses, according to Nomura’s figures, and sold about 2.86m in the Costa Brava beach house craze.
By the end of 2009, however, the financial crisis had erupted and left Spain with a stock of unsold houses of almost 700,000. By 2010, the number of new houses being sold had dropped to 200,000. Read more
The first time FT Alphaville stumbled upon China’s local government debt problem, it was in the form of one Shanghai district township snaffling a $250m loan from a Chinese bank for a “high-profile investment.”
Small problem — the township spent the loan, secured using a so-called local government investment vehicle (LGIV) without collateral, on completely unrelated development projects. Read more
Beijing’s efforts to cool the country’s sizzling residential property market are finally beginning to work after a year of moral suasion and threats to local governments, banks and developers, writes the FT. For some, including China’s cash-strapped local authorities, they may be working too well. The average transaction price for land sales across the country fell 32 per cent in April from a month earlier and has dropped 51 per cent since the start of the year, according to government data published by Credit Suisse. FT Alphaville notes that the supply of Chinese housing is also increasing, while the central goernment moved on Tuesday to shore up its local finances with a bailout of municipal debt worth up to $463bn.
Standard Chartered are on the ball as ever when it comes to developments in the Chinese real-estate market.
In their latest note they warn about the scale of possible over-supply that’s set to hit the market. Read more
So says Standard Chartered bank in their latest Metals Weekly research.
The bank was among the first to bring attention to the fad of commodity-backed financing in China, and now has this update: Read more
David Rosenberg’s gone all cartoony.
The Gluskin Sheff analyst seems to have given up on on words and is instead using charts — and Loony Tunes — to illustrate his (very salient) points. Read more
Standard Chartered’s analysts have been doing a good job of monitoring the Chinese real-estate conundrum — i.e. will prices collapse or will they just keep booming forever?
In a note issued on Thursday, though, they look more closely at the triggers that might eventually prompt a correction. Read more
Readers will have heard the case against real-estate and commercial real-estate investments. But here, courtesy of Patrick Moonen of ING IM, is a more optimistic view on Wednesday:
Real estate outperformance could continue in 2011. ING IM says there are a number of supporting factors for this prediction – notably that many real estate listed companies have refinanced and that the underlying commercial property is at a turning point on vacancies and rents, while dividend yields in the developed markets are attractive.
Foreclosure worries are now (finally) seeping into bank shares and credit.
Four US financials — Bank of America, JP Morgan Chase, GMac/Ally, PNC — have halted foreclosures in all or some US states while they sort out technical deficiencies in their paperwork process. Read more
Retail is in — and real estate is out, says the WSJ’s China Real-Time Report. That’s the message being gleaned from the Hurun Report’s list of Chinese billionaires (ex Hong Kong and Taiwan), which counts between 400 and 500 dollar billionaires in the country. Around 95 per cent of individuals worth over $150 million draw their riches from consumers inside China, from beverages magnates to the lords of the country’s web industry: Baidu’s founder is ranked fifth-richest with the Red Bull soft drink’s Chinese licensee. There’s another Hurun Report list of interest to China, the FT reports: more than half the world’s richest self-made women are Chinese. Zhang Yin, head of Nine Dragons Paper, takes the top spot. Oprah Winfrey is ninth.
The fiscal situation for US cities is the worst it has been in at least 25 years and the problems are intensifying, research released on Wednesday shows, the FT reports. The National League of Cities, which surveyed finance officers in 338 cities, found that property tax revenues are just beginning to decline in what was an anticipated, but delayed response to the collapse of the real estate market in the last few years.
This is why Barclays Capital’s warning over Ireland’s medium-term debt sustainability matters. Note that phrasing. Ireland will not be going to the IMF tomorrow — but there’s more uncertainty in the next few years.
Uncertainty over how much is left to support Irish banks, that is — Anglo Irish above all, even as it faces winding down. Read more
Respectable, not spectacular. The Harvard endowment has posted an 11 per cent increase in its $27.4 portfolio, the NYT reports. The return follows last year’s 27 per cent plunge in the endowment’s value — marking a turnaround for chief executive Jane Mendillo — but that’s still below the 12.3 per cent median return of large endowments, and also below the DJIA’s 18.9 per cent return over the same period, the WSJ reports. The endowment’s 9 per cent weighting of real estate in its portfolio helped drive a negative 2.7 per cent returns on ‘real assets’, too. But Harvard’s dropped talks on selling stakes in real estate to China’s sovereign wealth fund, Bloomberg reports.
Private equity firms including KKR and TPG have approached Morgan Stanley about buying a stake in its troubled real estate funds management business, people familiar with the matter have told the FT. Colony Capital has also registered interest as part of its bid to build up property exposure. The fund has attracted private equity suitors as given a drive to increase assets under management and diversify away from traditional buy-out activity, the FT adds. KKR has meanwhile indicated that it will start raising funds for a new North American fund in the next few quarters, Reuters reports.
Is the Chinese property market in a bubble, or not? It’s a vexed question. FT Alphaville has a round-up of recent views, including an upbeat report by Standard Chartered’s Stephen Green. Read more