Friday property news update - 2nd July
Fading financial equivalence, lessons from lumber and a $169 million penthouse
5 minutes to read
Brexit
The Chancellor Rishi Sunak said yesterday he'd largely abandoned hopes of securing financial equivalence with the EU and declared he'd now make the most of the UK's ability to set its own rules post-Brexit.
Alongside Mr Sunak's Mansion House speech to financial services bosses, the government published a 36-page document entitled “A New Chapter for Financial Services”, which sets out the chancellor's vision for the City after Brexit. Reuters has a good, albeit technical summary of the proposals. As Rob Moulton, co-chair of Latham & Watkins' financial institutions group, tells the Telegraph - any one of these measures on their own would be something of a footnote, "but all together in a package it says we're going to review so many things that we're going to create our own regime."
The UK has lost some equities trading to the EU in recent months and it's clear the government intends to push on with plans to offset that by deepening ties with emerging markets including China, India and Brazil. As George Osborne's former chief economic advisor Rupert Harrison notes, Mr Sunak's speech also makes the point that London is best placed to be a financial centre for Asia, where most of the world's growth is happening.
Inflation
Speaking at the same event, Bank of England (BoE) Governor Andrew Bailey warned that "alarmism" and an overreaction to inflation could kill off the recovery - full speech here. His comments come days after outgoing chief economist Andy Haldane warned the UK was at a "dangerous moment" with inflation likely to hit 4% by the end of the year.
The BoE, the Fed and the ECB are all battling to convince investors that rising prices prompted by the coordinated reopening of the global economy will pass. Mr Bailey warned that GDP would not return to pre-Covid levels until the end of the year, that steep rises in commodities prices were already beginning to ease, and that many businesses would take longer to recover than aspects of the economy that had bounced back sharply.
He used US lumber prices to make his point on commodities, which has a direct read across the housebuilding in the UK. The US continuous lumber contract rose from around $400 pre-Covid to around $1700 in early May, as the price rose in the face of inelastic short term supply. That contract is now below $800 as more lumber supply comes onto the market, and there is a shift to satisfy the higher demand at a lower price.
Stamp duty
On Wednesday we welcomed the tapering of the stamp duty holiday. With the housing market breaking records on an almost monthly basis, the tax break had begun to exacerbate distortions, particularly a demand and supply imbalance as sellers held off putting properties on the market.
The chart below reveals the extent of that distortion. We don't yet have whole of market data for June, but we know Knight Frank carried out the highest number of UK transactions on record last month.
Though we noted the taper process was a move back to normality, stamp duty remains a problematic tax and Number 10 rejected calls for reform from the Treasury Committee as recently as last month. In a new episode of Intelligence Talks, Anna Ward speaks to Tom Bill and Sean Randall, partner at Blick Rothenberg, about the near term future of property taxes, including whether Mr Sunak will look at increasing property ownership and disposal costs this autumn. Listen here, or wherever you get your podcasts.
New York
The New York Times reports that the 96th-floor penthouse at 432 Park Avenue is for sale at $169 million.
The sale comes at an interesting moment for Manhattan's housing market. Last week I argued New York City's prime housing market was primed for a sharp recovery. Restaurants are crowded, flights are packed and corporate America is calling its workers back. Meanwhile Manhattan inventory, which has been stubbornly high, is now nominally just above the long term average after declining by almost a quarter since late summer.
New data from Jonathan Miller, covered separately in the paper, reveals there were 3,417 completed deals from April to June, versus 1,357 deals a year ago. Even when measured against the January to March quarter, when Manhattan had 2,457 sales, this spring seemed particularly busy. Sales rates are now approaching levels not seen since Q3 2015 — the most recent high point — when there were 3,654 sales.
Travel
Each week my colleague Will Matthews compiles a range of key leading indicators monitoring developments in the global economy, from currencies and commodities to fund raising and furlough.
This week's picks up on the recovery in air travel. Flight numbers have seen a steady rise this year, and in recent weeks have remained just a few percentage points below equivalent figures in 2019. The reopening of borders has been frustratingly slow, but the evidence suggests the return of quarantine-free overseas holidays is imminent.
Yesterday the EU launched a “digital green certificate” allowing Europeans who have proof of vaccination, a negative test, or proof of recovery from the virus, to travel to other member states. The app-based system gives travellers a QR code unlocking quarantine free travel.
The UK government is working on similar plans. Changes to the UK's travel rules could come into effect as early as July 26th. Meanwhile, Germany is preparing to relax restrictions on British travellers entering the country before a meeting between Boris Johnson and Angela Merkel today.
In other news...
Reversing the regional brain drain will take more than good jobs. Here's Nick Pleydell-Bouverie on the role real estate plays in rebalancing the UK economy. Plus, Faisal Durrani on residential sales volumes recovering to pre-Covid levels across Saudi Arabia.
Elsewhere - HS2 hit by second legal challenge over £2.8bn train contract, world leaders sign the global tax deal as Ireland rebels, office vacancies in New York, EU joblessness drops the most since the onset of the pandemic, UK households save a fifth of disposable income in first quarter, and finally, gas and car bills to soar under green revolution.