Friday property news update - 28 May
Signs of an easing supply crunch, sentiment soars and the wealthy pour into Singapore
5 minutes to read
Sentiment
UK companies are more upbeat about the economic outlook than at any time since 2016, according to the closely-watched Lloyds Business Barometer.
Almost all measures rose notably during May, from economic optimism to expectations for future business activity and plans to take on more staff. Sentiment plays an important role in both the housing market and the wider economy. Prevalence of the new strain of Covid-19, which now accounts for as many as three quarters of all new coronavirus infections, isn't weighing out the outlook at the moment.
Boris Johnson said on Thursday he did not see anything “currently in the data” to suggest that unlocking would not go ahead as planned, but added that "we may need to wait”, according to the FT.
Meanwhile, sentiment in the housing market continues to improve. Household views on both current and future house price growth are now higher than the months preceding the pandemic.
Rates
The Lloyds survey includes a small sting in the tail. Firms’ pricing expectations for their goods and services increased for a fourth straight month, which will add pressure on Bank of England policymakers that are seeking to convince investors that rising inflation will pass.
The pound moved sharply higher yesterday after BOE official Gertjan Vlieghe suggested the Bank could raise interest rates early next year if employment remains robust following the wind down of the furlough scheme. Indeed, rates will need to rise by more than 1% within three years if the recovery outstrips current expectations.
Markets have for weeks been betting the Bank will begin raising interest rates early next year. We talked on Wednesday about why we believe the housing market is on a steady footing to move into an era of tightening monetary policy.
House prices
A shortage of supply of homes for sale has been fuelling inflation in the housing market, see previous notes this month. Annual UK house price growth in the year to March reached 10.2%, according to the ONS, which was the highest figure since August 2007.
We've been saying for several weeks that, as more properties come onto the market and once the stamp duty holiday ends, price growth will slow. Tom Bill this morning picks up on signs the supply and demand imbalance is beginning to right itself.
In the first eight weeks of this year, the number of market valuation appraisals - a leading indicator of supply - was at its lowest level in six years and 38% below the equivalent period in 2016. However, in the following 11 weeks, a period that runs until mid-May, the number reached its highest level in six years and was up by 5% on 2016.
That points to the return of a more balanced market and, eventually, reduced upwards pressure on prices.
Singapore
Bloomberg has this long read on large numbers of the ultra-wealthy pouring into Singapore.
The piece notes that the number of single family offices in the city-state has doubled since the end of 2019, demand for private golf club memberships is soaring, real estate prices have jumped the most since 2018, Michelin-star restaurants are packed and global banks like UBS are expanding in the city to manage the massive influx of assets.
A shortage of prime property is showing up in our research, particularly penthouses or units larger than 3,000 square feet. A shortage of new projects is drawing buyers to second hand stock and there were 15 deals to buy penthouses built between 1991 and 2016 during the first quarter. An S$18.0 million (£9.6 million) deal for a 7,266-sf penthouse in St Regis Residences topped the list.
It takes USD2.9 million to be in the top 1% in Singapore, which places it fourth globally and number one in Asia. Even so, the number of prime properties, which we generally define as the top 5% of the market, is constrained relative to other global cities. In London, for example, prime housing stock amounts to just shy of 70,000 homes. In Singapore that stands at just over 10,000 - you can read more on this in The Wealth Report starting on p21.
Biden's budget
The economic outlook in the US continues to improve dramatically. The number of Americans filing new claims for unemployment benefits dropped more than expected last week amid a surge in demand for employees as the economy reopens.
President Biden will today propose a $6 trillion budget that would take federal spending to its highest sustained level since World War II. His agenda includes massive investments in education, transport and fighting climate change.
A New York Times analysis of the budget includes forecasts for inflation and economic growth that look modest in the face of warnings the economy may be overheating. Biden's budget projects that inflation will rise to 2.1% this year, hit 2.2% in 2023, before settling at 2.3% annually from 2025 through to 2031.
Economic growth also looks modest in light of the economic data we're currently seeing. The administration anticipates the economy will rebound to grow 5.2% this year and 4.3% in 2022 before settling to grow 1.8% to 2% for the rest of the decade.
In other news....
The pandemic boosted demand for homes with space and privacy and shone a spotlight on coastal or mountain markets - something Los Angeles offers in spades, writes to Kate Everett-Allen.
Plus, a shortage of prime homes is a Europe-wide issue. Kate checks in with our regional teams to find out what's in demand.
In an upcoming webinar, we explore the themes emerging from the London Tall Buildings Survey 2021 and discuss how developers and town planners are responding to changing market conditions and evolving planning policies. The event takes place on June the 10th at 9am. Register here.
Elsewhere - UK restaurant bookings soar, Monaco’s latest luxury housing scheme rises from the sea, a new global code to trap corporate tax avoiders, and finally, oil hits two-year peak in anticipation of higher demand.
Photo by Mike Enerio on Unsplash