Midweek property news update - 5th May
Supercycles, the everywhere rally and is Mr Sunak backing away from an overhaul of capital gains tax?
5 minutes to read
Keeping a lid on the asset boom, continued...
New Zealand's central bank said it is prepared to implement limits on loan-to-value ratios or restrict the amount of money banks can allocate to mortgage lending in an attempt to get a grip on its red hot housing market. Average prices in the Pacific island nation have climbed more than 20% in a year.
We've talked before about the struggle faced by global governments attempting to get a grip on asset price booms fuelled by low rates and money printing. As Ruchir Sharma, Morgan Stanley Investment Management’s chief global strategist, noted back in March; many governments “have come to embrace easy money as a way to finance social programmes, but need to recognise its negative impact on financial stability, wealth inequality and housing affordability."
New Zealand's central bank is among the most active in trying to quell a housing boom. The latest restrictions - tightening the kind of high loan-to-value lending that is relied on by equity poor homeseekers like first time buyers - are framed as a buttress to financial stability, rather than inequality, and provide a good illustration as to why cooling markets without exacerbating existing inequalities will be so challenging.
The everywhere rally
Right on cue, Kate Everett-Allen reveals prime prices in key global cities are rising at their fastest rate since 2017. Prime prices, defined as the top 5% of the housing market in value terms, increased an average 4.6% in the year to March 2021.
Three Chinese cities – Shenzhen (+19%), Shanghai (+16%) and Guangzhou (+16%) – lead the index this quarter, fuelled by improving economic sentiment and government investment in the Greater Bay Area of China. Buyer enthusiasm has persisted despite the introduction of a new round of curbs in January.
Vancouver and Seoul (both +15%) complete the top five rankings. Successive cooling measures have been deployed in both cities in attempts to reduce speculative activity but local appetite for homebuying remains undeterred. Residential sales in Greater Vancouver increased 22% in 2020 year-on-year.
The allure of country living
UK housing market trends established early in the pandemic are also proving resilient. Our Prime Country House Index climbed up 6.7% in the year to March, the fastest rate of growth since before the Global Financial Crisis.
As Chris Druce notes, buyers have continued to seek more space, greenery and privacy at the tail end of the pandemic. That includes exploring a new work/life balance that could see many working from home more often after current restrictions end in June.
Meanwhile, the Bank of England yesterday said net mortgage borrowing hit £11.8bn in March, the strongest since records began in April 1993. As Simon Gammon of Knight Frank Finance tells the FT: the brightening economic sentiment, limited housing stock and changes to styles of working and living created a potent mix likely to support activity and house prices well into the summer months.
Capital gains
The Bank of England will tomorrow upgrade its economic growth forecasts, according to economists tallied by the Times. Deutsche Bank, for example, expects the Bank to increase its GDP forecast to closer to 7% and bring forward its forecast for a return to its pre-Covid level to the end of the year, rather than the first quarter of next year.
Economists broadly expect the base rate to be held at record lows until as late as 2026 - see Flora Harley's piece last month - however, tomorrow's announcement will be watched closely for signs the Bank may reign in its pace of quantitative easing amid signs of a rapid pick-up in economic growth. Manufacturing, for example, expanded at its fastest pace in almost 27 years last month as demand rebounded ahead of the easing of lockdown measures.
Speaking at an event yesterday, the chancellor Rishi Sunak said he was cautiously optimistic that positive signs in the data could be maintained for the rest of the year. The Telegraph picks up on separate comments in the same speech suggesting "that measures he announced in the March Budget should be enough to return the battered public finances to level footing - suggesting he has backed away from a hike to capital gains tax after speculation the Treasury was preparing a crackdown."
The supercycle
The pace of the global economic recovery is fuelling inflation and leaving investors doubting promises from central banks that interest rates will remain low for the foreseeable. US Treasury secretary Janet Yellen rocked markets yesterday after suggesting interest rates may need to rise over time to keep the US economy from overheating.
A commodities boom is underway. Bloomberg reports on mounting numbers of consumer-facing companies warning in recent days that supply shortages and logistical logjams may force them to raise prices. Meanwhile, tight inventories of materials as varied as semiconductors, steel, lumber and cotton are showing up in survey data across Europe and the US.
All this means the term "supercycle" has is increasingly being used. Commodities are cyclical in the sense their prices track rising and falling economies. As Tom Stevenson explains in The Telegraph, a supercycle is different, rather "driven by some kind of structural change in which demand is transformed over a period of many years, and usually all around the world at the same time."
In other news...
In a new retail note, Stephen Springham counts the cost of Covid and takes a look at online sales growth. Meanwhile in a new rural update, Andrew Shirley examines the impact of rising commodities prices on the UK's food production chain.
Plus: cities appoint ‘heat officers’ in response to warming threat, Warren Buffett sees a red hot economy with creeping inflation, the rental market is unusually uncertain Nationwide says, the cost of polluting in the EU soars as carbon price hits record €50, a third Covid vaccine for over-50s before winter, a space-aged Bordeaux wine offered for private sale by Christie's, when will Wall Street return to the office, and finally, the party’s starting, so the Bank of England must be ready to take away the punchbowl.
Photo by Ethan Dow on Unsplash