May 3, 2016

When Asset Pricing Is Driven By Central Bank Policy

A report from Bloomberg on Denmark. “In Denmark, where rates have been below zero longer than anywhere else on the planet, the private sector is saving more than it did when rates were positive (before 2012). As the Danes head even further down their negative-rate tunnel, the experiences of the Scandinavian economy may provide a glimpse of what lies ahead for other countries choosing the lesser known side of zero. Carsten Stendevad, the chief executive officer of Danish pension fund ATP, with about $115 billion in assets, says the policy is also proving problematic for markets.”

“‘I’m very concerned about what these low, negative rates mean,’ Stendevad said. ‘I’m concerned about what they mean for asset pricing. Clearly, they are driving asset prices. That’s the intention, but it’s always a cause for concern when asset pricing is driven more by central bank policy than cash flow generation.’”

The National on Dubai. “Average house prices in Dubai are likely to fall by another 10 per cent this year with no sign of improvement on the immediate horizon, according to the ratings agency Standard & Poor’s. In a note S&P said that after falling between 10 and 13 per cent last year, it expected similar falls this year with few signs of optimism for the year after. Cluttons reported that sales prices fell by 2.2 per cent in the first quarter of the year and uncertainty over oil prices, which has a knock-on effect on banks’ liquidity, meant a recovery in the short term was unlikely.”

Reuters on Hong Kong. “Hong Kong’s home prices posted their sixth consecutive month of decline in March, government data showed, with housing supply expected to hit a record high over the next few years. Home prices fell 3.5 points from February and 21.3 points from a year earlier, according to a government index published by the Rating and Valuation Department. Data from Hong Kong’s Transport and Housing Bureau showed the city’s private housing supply was on track to hit a record high of 92,000 units in the coming three to four years.”

“A large number of units remained unsold as of the end of March. There were 1,000 completed but unsold units from developments completed prior to 2014, another 1,000 from projects completed in 2014 and 3,000 from projects completed last year, the data showed. In the first three months of the year, another 1,000 units had accumulated. Of the units under construction, 86 percent had yet to be sold, the data showed.”

ABC News in Australia. “Westpac Bank and its subsidiaries are no longer lending money to foreigners wanting to buy residential property. It is the third major bank to clamp down on lending to non-residents, home buyers with foreign self-employed income and those who hold temporary visas in Australia. The changes that ANZ and Westpac in particular have brought in are likely to hurt developers, such as Meriton, who have been targeting Chinese buyers. Large numbers of Meriton’s Chinese buyers fund their purchases locally, with Westpac one of the largest lenders in the space, and could affect their ability to settle off-the-plan contracts that have exploded in the past couple of years.”

“As well as putting developers at risk, the changes could pressure home prices. The Reserve Bank earlier this year noted that property prices could decline and bank losses could rise if Chinese demand were to decline significantly, and the changes in bank lending rules could be the beginning of a downturn. ‘At Westpac, helping Australians to achieve their goal of owning a home or investment property is core to our purpose,’ an email to mortgage brokers said. ‘For these reasons, Westpac will no longer lend to offshore customers who are not citizens or residents of Australia with an eligible visa.’”

Sourceable on Canada. “Chinese investors are getting hungrier for real estate in Canada, where foreign demand has fuelled record price gains and made million-dollar homes the norm in cities such as Vancouver. Inquiries for Canadian homes for Chinese buyers jumped 134 per cent in the first quarter from a year earlier. The increased interest indicates that Chinese investors may be seeking to move money abroad amid instability in the country’s economy and stock market, even as the government clamps down on capital flight.”

“In Vancouver – where the average home price has jumped almost 40 per cent in five years – Chinese demand is concentrated in the luxury market, according to Malcolm Hasman, a high-end real estate agent in the city. Chinese buyers this year have purchased about three-quarters of the properties for sale in West Vancouver, where the average price of a detached home is $3.1-million. ‘This year is busier than last year,’ said the agent, who said it’s common for him to see multiple bids on homes as pricey as $10-million. ‘I just don’t see any slowdown in Chinese money driving the Vancouver market.’”

“Chinese investment also has soared in countries such as Australia and the United States. Chinese investors doubled purchases of commercial and residential real estate in Australia to $18.4-billion (U.S.) in the 12 months through June, 2015, from a year earlier, according to that country’s Foreign Investment Review Board. In the United States, they surpassed Canadians as the top foreign buyers of homes, with $28.6-billion of deals in the 12 months through March, 2015, data from the National Association of Realtors show.”

The Express. “Nigeria has begged David Cameron to stop corrupt officials laundering stolen money through Britain’s private schools, property market and department stores. In a stern letter, anti-corruption and human rights groups from the African state called on the Prime Minister to tackle the problem ahead of an international summit. The group accuses corrupt officials of plundering Nigerian assets and undermining their efforts to clean up the country’s finances.”

“The letter said: ‘Now we are embarked on a nationwide anti-corruption campaign. But these efforts are sadly undermined if countries such as your own are welcoming our corrupt to hide their ill-gotten gains in your luxury homes, department stores, car dealerships, private schools and anywhere else that will accept their cash with no questions asked. The role of London’s property market as vessels to conceal stolen wealth has been exposed in court documents, reports, documentaries and more. The problem is clear, now is time to do something about it.’”

“Signed by 95 groups from across Nigeria’s political spectrum, the letter comes two weeks ahead of the International Anti-Corruption Summit takes place in London. The letter brands the UK a ’safe haven for corrupt individuals, who steal our wealth for their own private gain.’”