It's all Brexit's fault, surely?
In recent years, mainland Chinese corporations and cash-rich individuals have been the worldâs largest buyers of real estate but this global property binge may subside soon. Since late November, the worldâs second largest economy has been scrutinising the deals and projects of its home grown companies abroad and fund repatriation by individuals, particularly towards mega property investments, doubtful mergers and acquisitions (M&A).
QE, asset-price inflation and wages
First chart shows the 'stellar' gains in world asset prices since 2008 and the sluggish growth in the economy. âWe donât know how effective QE has been (i.e. for the real economy) because we donât know what would have happened without it,â said Peter Oppenheimer, chief global equity strategist at Goldman in London. Falling interest rates supported most financial assets, while for the economy âQE has been effective to prevent downside risk,â he said. Any suggestions for a translation of this quote? Third chart shows how ballooning central bank balance sheets have ballooned equity prices. Will the Fed rein back QE and raise Treasury yields and mortgage securities?
Damn that pesky Brexit
If the downturn in London property is because of Brexit .... then why is it happening everywhere? Manhattan, Los Angeles, Vancouver, Hong Kong, you name it.... The answer is it's nothing to do with Brexit! It's because of capital flight controls in China and all the other factors we know well: rising US Dollar interest rates, Russia sanctions, oil crash etc etc But no doubt what's happening in London will be myopically attributed to Brexit. I read elsewhere that Nine Elms bee builds are being offered "cheap" but in reality even down 30% they are still expensive. Who are the buyers if offshore buyers can't cough up any more? The answer is onshore buyers, but only at prices they can afford and they are much lower... the market will clear but not up here.
Buy to let a dying tax dodge
This article is a reminder of just how hard the high loan to value Buy to Letters are going to be hit in the next few years. From April 6th they will be taxed on 25% of their mortgage interest leading to 100% by 2021. This will put many under water based on current low interest rates. Add in a small rise in interest rates and changes in NI and much off this sector will unravel. Already we have seen a massive decline in people buying Buy to Let. The next stage will be people selling. A lot of landlords are crying that this will create a housing shortage and put up rents. This is nonsense as houses get recycled not demolished. so a house taken out of the buy to let sector becomes an owned house and one less renter.
Better than the prospects for renters :(
UK economic growth has been amazingly steady but the issue will come in the latter half of the year when we are hit by higher inflation levels. These days what was previously regarded as relatively low inflation ( 3%+ on CPI and 4%+ on RPI) has a larger impact because so far on the credit crunch wage growth has not risen with it so we saw a sharp fall in real wages around 2011 for example. It is not impossible that the Bank of England could cut Bank Rate again or produce other house price and bank friendly measures but even they may balk at that with inflation above target. Thus house price growth looks set to fade and the price falls will spread out from Central London. How far across the country they will go depends on the mix between economic growth that 2017 and 18 deliver to us.
Corrupt money is thought to be pouring into Londonâs housing market and exacerbating the capitalâs housing crisis, with more than Â£4.2bn worth of property bought using suspicious wealth.The acquisition of luxury property by corrupt individuals is causing a ripple effect, driving up prices in the rest of the capital and pushing many Londoners out of the city, according to a report by Berlin-based anti-corruption NGO Transparency International.