A Stuck-In-The-Headlights Situation
A report from Globes on Israel. “Bank of Israel figures show that the average interest rate on index-linked mortgages rose from 3.84% in January to 3.85% in February, completing a rise of almost 2% in 18 months. Causes of the increase included expectations of a rise in the Consumer Price Index; a slackening of competition between the banks; bond market fluctuations, which affect the mortgage market; expectations that the Bank of Israel will raise its interest rate; and, above all, continued demand for housing, despite reports of a slowdown. The upward trend extended to all mortgage periods. The figure published means that the effective mortgage interest rate (taking index-linkage into account) is nearing 6%: the Bank of Israel itself sets the annual inflation target at 1-3%.”
“While it is true that this target has not been achieved in recent years (the CPI has gone down in the recent years), the expectation is that inflation will resume in the near future. In such a scenario, people who take index-linked mortgages will discover that their mortgage payments are significantly increasing. If we assume that the CPI will increase by 2%, the effective interest rate will be around 6%, which is high.”
The Sunday Times on the UK. “Homeowners are waiting up to ten months to sell their properties as inflated asking prices and economic uncertainty cause the housing market to stall. The slowdown is particularly affecting areas of southern England where prices have risen rapidly in recent years, including London, Oxford, Bristol and Cambridge. This has left many sellers trapped in homes that they would rather leave, creating a block in the market.”
“Nina Harrison, of Haringtons, a property buying agency, said: ‘It is a stuck-in-the-headlights situation. Neither party [buyer or seller] dares to move.’”
The China Post on Taiwan. “Taipei’s luxury home market thawed over the past few months but prices for The Palace — one of the most coveted residential complexes — remain uncertain after two of its units failed to sell at separate auctions. The price set for the TFASC auction was still too high to attract buyers, while the unit in the court auction comes with an existing tenant, which deterred potential bidders, the agents said.”
“The TFASC set the bottom price for the unit at NT$750 million, or almost NT$2.789 million per ping (3.3 square meters). Xinyi Realty researcher Tseng Ching-der noted that at the peak of Taiwan’s property market in recent years, price-per-ping for a unit of The Palace — located at the junction of Jianguo South and Renai Roads — reached as high as NT$2.982 million, and the average stood at about NT$2.7 million, according to the Central News Agency. For the unit in the court auction, the bottom price was set at NT$265 million, or about NT$2.36 million per ping. Jessica Hsu, an executive from the HB Housing, said it was no surprise that the auctions failed because the deals did not seem profitable.”
From Bloomberg on China. “The strength or otherwise of the Chinese property market is set to have far-reaching implications for the global economy this year. Rather than relying solely on official statistics, however, those looking for an indication of the performance of the Chinese construction sector might want to direct their attention to the world’s steelmakers. Construction accounts for the biggest part of steel demand in the top consumer markets, according to Bloomberg Intelligence. China’s home prices have shown signs of slowing as local governments and banks follow Beijing’s orders to tighten the market and rein in asset bubbles.”
“Stockpiles of iron ore at China’s ports have expanded at an ‘unprecedented’ pace since the start of this year, noted Ivan Szpakowski, chief investment officer at Academia Capital LLC. Iron ore inventory at China’s ports rose to a record 127 million tonnes last week, according to Shanghai Steelhome Information Technology Co., while stockpiles of reinforcement bar used in construction surged to 8.2 million tonnes, the highest since April 2014.”
“‘We’re much more leveraged now than we’ve been in two years, in terms of inventory throughout the whole supply chain, whether it’s traders or steel mills, or whether it’s iron ore or steel,’ said Ivan Szpakowski, chief investment officer at Academia Capital LLC.”
The Courier Mail on Australia. “The building industry is getting tougher every day. ASX-listed Onterran, which owns Brisbane-based Bloomer Constructions, voluntarily suspended its shares pending an announcement about the ‘potential divestment of a subsidiary and trading update.’ It is not clear what is going on, but we hear Bloomer has been struggling in an increasingly tough property market.”
“Onterran, which acquired Bloomer in 2015, warned last year that its subsidiary had been ‘working through a difficult period’ with significant increases in contractor and raw material costs. Onterran did not return calls yesterday but we hear there are quite a few nervous subbies out there.”
“Creditors of the collapsed Cullen Group Australia have appointed a new Melbourne-based liquidator Michael Caspaney, of Menzies Advisory, to replace Brisbane’s Mark Pearce. Cullen closed its doors just before Christmas, owing creditors an estimated $18 million and capping a horror year for the building industry that faces a glut of inner city apartments and tighter bank lending.”
“Caspaney was not available yesterday to explain why he was given the job, but we hear he has his work cut out for him unravelling the financial mess. The industry regulator, the Queensland Building and Construction Commission, has come under fire for not acting sooner to shut Cullen down.”
