Hong Kong's reopening, a spring statement and the UK property market's window of opportunity
Making sense of the latest trends in property and economics from around the globe.
5 minutes to read
The spring statement
How much will the Chancellor loosen the purse strings when he rises to give his spring statement on Wednesday?
We know the cost of living squeeze is set to worsen, but it's still early days. Sentiment is flagging but spending remains resilient. The most recent data available from the ONS shows spending on debit and credit cards slipped a little in the week to March 10th, but was still in line with pre-pandemic norms. Footfall remained at 87% of its level in 2019.
Data from the housing market also doesn't reveal a nation yet gripped by a cost of living crisis (see below), with the large caveat that how much inflation is cutting into your pay depends on where you sit on the income scale - as we discussed Friday. The Bank of England believes inflation will continue to surge towards the end of the year before energy prices stop rising and the income squeeze does eventually cut consumer spending to the point it brings down domestic inflation significantly.
That's a pretty fluid environment in which to be issuing giveaways that can be difficult to unwind, particularly when it comes to support for paying energy bills. The FT's leader points out that scrapping or cutting fuel duty would be politically popular but a mistake. It suggests government policy should focus on easing the transition to clean energy rather than "to dull the message that the country must reduce its dependency on fossil fuels".
Incentives
The issue is clearly prompting soul searching among governments globally - do you take the pricier option of going all in behind renewables, or fire up your old coal power plants? The answer is a mixture of the two - see Boris Johnson's push further into nuclear and wind while trying to boost Britain's domestic oil and gas production - but it's interesting to watch policy on a key issue evolve in real time.
This renewed sense of urgency will inevitably reach the property market. We've talked many times about the UK's lack of a clear strategy to "green" the nation's housing stock. Last month the House of Lords committee lamented the continuing confusion in government as to whether to commit to hydrogen, heat pumps or what mix of the two is appropriate.
That confusion has led to a lack of compelling incentives that generate real interest among homeowners to make green upgrades, whether via voucher schemes or green financing. Surging energy bills have markedly altered the cost/benefit analysis of making these changes and the current moment might lay the groundwork for officials to implement something more meaningful.
New research from the Home Builders Federation reveals the scale of savings that energy efficient homes can offer. Owners of new houses and flats, for example, will save an average of £435 a year on their energy bills, rising to £555 for new build houses alone. The running costs for all new build homes issued with an EPC in the 12 months to September 2021 came to approximately £116 million. If these homes had been built to the same standards as the existing properties in the sample, running costs would have been around £228 million
A narrowing window
Asking prices for UK homes rose 1.7% in March, the largest increase for any March since 2004, according to Rightmove. There are twice as many buyers as sellers, the largest imbalance ever.
It is premature to say prices will now slow down notably but an annual increase in UK house prices of 12.6% recorded by Nationwide in February doesn’t feel like it has a long shelf-life, particularly when you factor in the cost-of-living squeeze - see Tom Bill's weekly note out this morning. The “escape to the country” trend has become less frenetic in recent months and both borrowers and lenders are becoming more cautious in the wake of three consecutive rate rises.
“If a good property comes on at a good price, it will sell under competition,” James Cleland, head of Knight Frank’s country business tells Tom. “However, it’s no secret that there are more headwinds out there and buyers have become slightly more realistic. For owners thinking about bringing their property to the market, it means the next few months represent a window of opportunity while demand remains so high.”
Hong Kong
Hong Kong will lift a flight ban from nine countries, including the US and the UK, for Hong Kong residents and cut the quarantine period for travellers in half to seven days. The changes take effect from April 1st.
The move will alleviate some of the stasis impacting both commercial and residential markets. Office tenants are generally taking a wait-and see approach, leading to a high vacancy level of 8.5% for Hong Kong Island. Among the submarkets, Wan Chai recorded the highest vacancy rate of 11.8% during January, according to our latest research. As we're seeing in other global markets, however, rents in central located Grade-A buildings continue to pick up.
Residential market activity slowed down abruptly in both the primary and secondary residential markets amid the latest outbreak of Covid-19. A total of 4,275 transactions were recorded in January, for a consideration of HK$43.4 billion, dropping 16.9% month on month in the primary market and 10.5% MoM in the secondary market.
In other news...
In a new Rural Market Update, Andrew Shirley covers the trade-off between food security and environmental recovery.
Elsewhere - Sun, sea or salary: Citi recruits’ future of work trade-off (FT), add levy to tax, not bills, says green energy industry (Times), and finally, Europe's workers are wary of asking for pay rises (Bloomberg).