PLUNGING US home sales are having a ripple effect on consumer spending, as fewer Americans are moving into houses that need to be outfitted with furniture and appliances.

The effects are visible across the economy. Spending on furniture and related items fell nearly 12 per cent from the year-earlier period in October. Home goods sellers including Z Gallerie and Serta Simmons Bedding have filed for bankruptcy this year, citing weaker demand, and more are probably coming. Williams-Sonoma’s chief executive said last month that consumers are hesitant to spend on expensive furniture. Home Depot, the hardware and appliance store, said its revenue will likely drop this fiscal year.

The Federal Reserve last year started a rate hiking campaign to tame inflation, and slowing the housing market is a key way to make that happen. In October, mortgage rates reached their highest level since 2000, helping to make housing the least affordable since at least the 1980s.

On Thursday (Nov 30), the effects of low affordability became even clearer: a gauge of pending sales for existing homes reached its lowest level since the measure started in 2001. Home loan rates have started drifting lower amid growing hopes the Fed will start to expand the money supply again next year, but it could take years for the housing market to return to normality.

“It’s just less affordable to buy a house today than it was a couple of years ago when rates were much lower, and that’s closed out a certain amount of spending that would have otherwise happened,” said Jack Kleinhenz, chief economist at the National Retail Federation.

The average household shells out US$8,000 more on home-related goods and improvements in the two years after a home purchase, according to a study published last year by professors including Efraim Benmelech at Northwestern’s Kellogg School of Management.

Falling revenue

Without that expenditure, retailers are feeling the pain. Williams-Sonoma, owner of Pottery Barn, estimated last month that its revenue will fall as much as 12 per cent this fiscal year. Ethan Allen Interiors, a maker and seller of furniture, posted a 24 per cent decline in sales in the latest quarter, due in part to slowing demand.

Some firms have struggled to navigate the broad decline in consumer expenditures. A series of companies that provide home furnishings have sought bankruptcy protection this year, including Z Gallerie, Mitchell Gold + Bob Williams, and discounter on Tuesday Morning. Pillow maker Pegasus Home entered bankruptcy in August, mattress wholesaler Serta Simmons did so in January and the photo frame seller NBG Home sought protection in February.

“From a creditor and trade vendor perspective, there’s concern in the industry,” said Jordana Renert, a partner in the bankruptcy department at law firm Lowenstein Sandler, referring to investors in stores that sell decor. “Until new home purchases pick up or mortgage rates decrease, I think the home-goods furniture industry may continue to see a pause in consumer spending and an increase in chapter 11 filings.”

With mortgage rates having risen as much as they have, it’s not clear when home purchase volume will resurge. Many homeowners are unwilling to sell, in part because that means letting go of the cheap mortgages they locked in during the pandemic. That’s translated to relatively more of the transaction volume coming from new home sales, where developers are looking to offload homes they’ve built.

More than 60 per cent of US home loans have rates below 4 per cent, according to data from Black Knight, while the latest 30-year Freddie Mac mortgage rate is closer to 7.2 per cent. On average, a 1 percentage point increase in mortgage rates relative to where borrowers have locked in leads to a 9 per cent decline in the rate at which people move houses, according to a study by professors including Julia Fonseca at the University of Illinois Urbana-Champaign. If a homeowner, for example, were thinking about changing jobs, the new position would have to pay much more for the consumer to be willing to give up their mortgage.

“Lock-in can prevent households from pursuing labour market opportunities that would have been worthwhile otherwise,” Fonseca said.

Homebuilder pressure

Lofty interest rates are not only crimping activity on the demand side, they are also pushing up prices on the supply side of the market and are threatening to keep them elevated for some time, said Robert Dietz, chief economist at the National Association of Home Builders.

The interest rate that homebuilders are paying to finance the construction of single-family homes is close to 13 per cent, Dietz said, and material costs have risen alongside inflation. That has made it more difficult for builders to break ground on new homes now, which could squeeze supply for two to three years. The impact could be felt across the economy for some time, according to Dietz.

“If you take all the challenges in the housing market and think of them almost as taxes on new housing supply, those taxes are restraining economic growth,” Dietz said. BLOOMBERG

Source : TheBusinessTimes

The post US Slowest Housing Market in Years is Weighing on Consumer Spending appeared first on Amora Escapes.

Real estate in the regions continues to lag Australia’s capital city markets, according to the refreshed CoreLogic Quarterly Regional Market Update.

Analysing the country’s fifty largest non-capital Significant Urban Areas (SUAs), the report found factors such as soaring interest rates, the cost of living crunch, and internal migration returning to normal patterns have noticeably hit the regions.

Regional home value growth underwhelming

Values for the combined capitals bottomed out in January, according to CoreLogic, with values having since returned to new record highs.

The combined regional market, however, remains 2.5% below the May 2022 peak.

Results of individual areas varied, with just over a fifth (12, eight in Queensland, two in NSW, two in WA) of the fifty areas analysed recording new peaks in October; CoreLogic economist and report author, Kaytlin Ezzy, also noted four were within one per cent of previous record highs.

“Looking at quarterly value growth, WA’s Bunbury recorded the strongest rise, up 4.6% over the three months to October, followed by NSW’s Lismore, and St Georges Basin – Sanctuary Point, up 4.3% and 3.9% respectively,” said Ezzy.

Source: CoreLogic.

While New South Wales and Queensland did not take out top spot, areas across the two states made up most of the top 10 positions for quarterly value growth.

“Queensland also made up half of the top 10 for annual value growth, with Bundaberg and SA’s Mount Gambier both recording annual growth above 10%.”

Further south, the story was starkly different.

“In contrast, regional Victoria saw some of the largest quarterly declines, with dwelling values across Warrnambool and Ballarat falling -1.6% and -1.5%, respectively, while the coastal town of Batemans Bay in New South Wales (-6.9%) recorded the largest annual decrease. These markets are now seeing weaker growth conditions after strong gains during the pandemic upswing,” said Ezzy.

Slower and fewer sales

Ezzy observed that while dwelling values across three in four of the largest SUAs rose over the year, only one market saw sales activity grow.

“The flood-ravaged town of Lismore (NSW) saw the number of home sales rise from a flood affected low base, lifting 16.5% over the year to August.”

Queensland’s Gladstone recorded the smallest decline in sales, down only 1.2% from the strong volumes recorded the year prior.

Western Australia’s Kalgoorlie – Boulder and Geraldton both recorded mild declines, down 3.1% and 6.1%, respectively.

Annual sales volumes (12 months to August 2023)

Source: CoreLogic.

Ezzy said the remaining markets all recorded double-digit falls in sales activity. Nelson Bay, in New South Wales, was the only market to exceed a 30% fall in sales activity, down 30.8%.

Selling times varied considerably throughout the nation. Western Australia’s Albany, Bunbury, and Busselton recorded median times on market of 18, 19, and 20 days, respectively.

The highest median time on market was recorded in Bowral – Mittagong, with homes typically spending 71 days on market.

Median time on market

Source: CoreLogic.

Regional property market predictions for 2024

Ezzy expects a fair chance of softer housing market conditions ahead, following the recent cash rate rise and upwards revision in inflation forecasts.

“We’re already seeing an easing in the pace of monthly growth across our largest cities, and this is a trend we can expect to see playing out more broadly at least until interest rates top out,” she said.

“Higher interest rates, higher housing prices, higher rents and high cost of living pressures are likely to weigh on buyer sentiment leading into 2024.”

Source : ThePropertyTribune

The post Australia’s Regional Property Markets Remain Unremarkable in the Latest Quarter of 2023 appeared first on Amora Escapes.

If the government abolishes leasehold marriage values the cost of short leasehold stock could increase by 9.9%, according to a study from Bayes Business School (formerly Cass) and global property consultancy Knight Frank.

The marriage value refers to the increase in the value of the property following the completion of the lease extension.

In the King’s Speech on 7 November, the government announced it will become the norm to statutorily extend leases to 990 years.

Dr Mark Andrew, senior lecturer in the faculty of finance at Bayes Business School, said: “Our study has found that the Government’s plans to extend lease length and abolish marriage value could lead to a significant rise in the cost of purchasing a leasehold dwelling.

“Since the premium is much reduced by the proposed extension plans, it is logical to expect that a significant number of short leaseholders will extend their lease. Based on the assumption all short leaseholds are extended, the projected cumulative impact on the national leasehold market is a rise in prices by 3.2%.

“Such price rises have implications for the government’s levelling up agenda, as the proposed plans will potentially make housing even more unaffordable.”

“Furthermore, the largest beneficiaries of windfall financial gains will be investors and middle-income occupier lessees rather than lower income occupier lessees.

“Finally, a significant proportion of short leasehold investments are in lower income postcodes. The reforms could have implications for housing supply in the private rented sector if investors respond by selling up to realise the windfall gains.”

Based on the assumption all short leaseholds are extended, the researchers suggest that the longer-term effect is a 3.2% price increase nationally in the leasehold market.

In particular, the largest impacts occur in regions with either a large stock of short leaseholds (West Midlands) or leasehold stock in an expensive house price region (South East), or both (London).

Bayes Business School and Knight Frank also found that the financial gains are not confined to owner-occupier lessees as investors in the private-rented sector are often the largest recipients.

Dr James Culley, partner and data science lead at Knight Frank, said: “The current leasehold enfranchisement process appears complicated and an unnecessary headache for any leaseholder needing to go through it. For those reasons, the government proposals are laudable in their intentions to make the undertaking less complicated and cheaper for the leaseholder.

“Unfortunately, as they stand the proposals also come with large unforeseen consequences regarding affordability and pricing within the leasehold market. For instance, whilst an uplift in value for current leaseholders may be a positive thing, a large number of properties affected are in the private rented sector in low-income areas.”

Jeremy Dharmasena, partner and head of leasehold reform & litigation at Knight Frank, said: “The government’s initiative towards simplifying leasehold reform, particularly in the extension of leases from +90 years to 990 years, comes with positives and negatives. The changes will provide tenants with a sense of stability, ensuring certainty and enhancing the marketability of their properties, which can be seen as a positive step in the right direction.

“However, I’d caution against retroactively capping ground rents, as it will have a significant impact on pension funds and existing contracts, due to a loss of rental income. Abolishing marriage value, as highlighted in James Culley’s paper, will inevitably create further challenges including legal concerns and homeowner affordability. Whilst reducing premiums may seem beneficial, it will lead to a decrease in Stamp Duty Land Tax revenue.”

Investors owning short leasehold stock in the private sector will be the primary recipients of any financial gains, followed by middle- and low-income occupier leaseholders. A significant number of high-income occupier leaseholders will also benefit from the reform, particularly in Prime Central London.

Source : PropertyWire

The post Government’s Leasehold Reform Plans Could Increase Property Prices appeared first on Amora Escapes.

China’s real estate industry is collapsing in slow motion.

Major developers like Evergrande and Country Garden remain stuck in spiraling debt problems. So-called ‘ghost cities’ dot the Chinese countryside. And now the International Monetary Fund just cut its global growth forecasts for 2024 and called out China’s real estate crisis as a big reason why.

″It’s important to recognize that there is a longer-term challenge here, and that is we essentially have too large a construction sector in China, we have too large a real estate sector because underlying demand for apartments is declining,” said Frederic Neumann, HSBC chief Asia economist, in an interview with CNBC. “We have slowing urbanization. We have declining demographics.”

China’s overall post-pandemic economic recovery has been less than stellar. Youth unemployment is at record levels, gross domestic product forecasts have been lowered and the ongoing real estate crisis has been hitting consumer confidence and foreign investment in the country.

Beijing is now attempting to alleviate the sector’s pressure with several policy moves like lowering minimum down payments and allowing for the adjustment of mortgage rates. The spillover effects on the global economy, though, could create headwinds for years to come, said Neumann.

“China’s shrinking real estate sector over the coming years will really have a huge impact on heavy industry, on the commodity markets globally,” he said. “There’s going to be less steel demand. There’s going to be less cement being used — less glass, for example. That impacts within China heavy industrial areas that really produce these raw materials.”

Source : CNBC

The post What China’s Slow-motion Real Estate Crisis Means for the Global Economy appeared first on Amora Escapes.

The post Talks to Focus on Fixes to Australia’s Housing Crisis appeared first on Amora Escapes.

Ignominy comes quickly in China. Just a few years ago, Evergrande Group was the pride of the nation. The real estate giant was for a time China’s biggest constructor with more than 1,300 projects in 280 cities to date. And through sport, specifically soccer, it became the poster child for a new era of Chinese dominance. Guangzhou Evergrande soccer club won eight Chinese Super League (CSL) titles, including seven back-to-back between 2011 and 2017, as well as two Asian Champions Leagues, thanks to a galaxy of handsomely remunerated European and Latin American stars. It also ran the world’s biggest soccer school, whose “goal is to revitalize Chinese soccer and cultivate soccer stars, not only for the Evergrande group, but also for our country,” principal Liu Jiangnan told TIME in his office in 2016.

Back then, investment in soccer was smart politically. In 2015, Chinese President Xi Jinping unveiled a 50-point reform plan to develop grassroots soccer with the aim of China hosting and ultimately winning the World Cup. Evergrande even paid the bulk of former Italy manager Marcello Lippi’s salary as China coach from 2016 to 2019. In April 2020, Evergrande broke ground in Guangzhou on a new $1.8 billion, state-of-the-art 100,000-capacity stadium, which would be “a world-class new landmark comparable to the Sydney Opera House and Dubai Burj Khalifa,” Chairman Xu Jiayin told reporters.

In August, Evergrande filed for bankruptcy protection in the U.S. and last week Xu was arrested in China on suspicion of “illegal crimes” related to his firm’s precipitous collapse. Since a high in July 2020, the shares of Evergrande—the world’s most indebted developer—have plummeted 99%, wiping out almost $47 billion in market value, owing to a housing slump and regulator crackdown on excessive liabilities. Xu remains under investigation at an undisclosed location. That half-completed “landmark” stadium, meanwhile, has been seized by the local government toward servicing the firm’s estimated $300 billion of debt.

Evergrande’s global profile, owing in large part to its all-conquering soccer team, has only amplified China’s dire economic woes to the world. Meanwhile, the recent high-profile purge of top-ranking officials, bankers and generals has decimated the confidence of investors already reeling from the punitive investigations of consulting and accounting firms, bankers forced to do ideological study sessions rather than productive work, executives at foreign companies barred from leaving the country, and new draconian controls on exporting data. In the second quarter of the year, foreign direct investment into China was just $4.9 billion, down 94% compared with the same period in 2021, according to the Nomura financial services group.

Xu’s detention only adds to this unease, even if it was entirely predictable. Whenever a large Chinese company gets into financial trouble, the arrest of the top boss is never far behind—just look at Anbang, HNA Group, Huarong, Fosun, and many others. Sung Wen-Ti, an expert on Chinese politics at the Australian National University, says Xu’s arrest shows “cross-ministry coordination remains very much a work in progress” in China. “At the precise time when economic ministries are trying to resuscitate the real estate market by waiving a lot of requirements, more security-oriented portfolios are pursuing a high-profile target that’s likely going to make foreign investors wary.”

Evergrande’s woes leave an estimated 1.5 million customers with unfinished homes, but the problem goes much deeper. As real estate accounts for some 30% of national GDP, as well as up to 80% of household wealth, the crisis is cascading through the wider economy. China’s property developers collectively owe more than $390 billion to various suppliers, according to Gavekal Research. “We’re really only at the very beginning of the fallout of what’s happening in the property sector,” says Dinny McMahon, head of China markets research at Trivium China policy research group. “Real pain and real stress will be caused to ordinary people and firms.”

The question is how to fix things, and analysts agree a painful correction is needed before China emerges with a slimmed down real estate sector based on need, rather than investment potential. To that end, China has already decided to allow certain bad apples to wind down while supporting around half-a-dozen firms that are commonly regarded as well-run with perks such as foreign currency loans to meet their offshore debt obligations and state guarantees for domestic bonds. However, such is the severity of the crisis, even these—such as Country Garden, China’s biggest developer today—are also in distress.

The roots of the crisis are manifold: Chinese people typically see property as a better store of value than pensions or stocks, bolstered by cultural perceptions of homeownership as a prerequisite before marriage. Massive overcapacity at state-owned steel and cement firms—aggravated by government stimulus following the 2008 financial crisis—meant low material prices that incentivized developers to keep building. Meanwhile, the state pumped money into the construction industry to boost the economy.

But today, marriage and urbanization rates are falling, alongside China’s overall population. When China’s banking regulator tried to quell the market by reducing the credit flowing into the property sector, China’s “shadow banks”—trusts, securities, asset management companies—stepped in to lend the cash instead. What changed in 2020 is that regulators imposed hard limits on how much the developers themselves could borrow, sparking an almighty credit crunch.

Today, China is trying to encourage house purchases by slashing interest rates, mandatory deposits, and other red tape. But the problem is that housing prices also need to fall to the point that buyers see real estate as a good investment again. And in China, local governments really don’t like falling prices that threaten to undermine investor confidence and social stability. Not to mention the fact that selling land to property developers comprises a significant chunk of local government budgets—which are currently drowning in $12.8 trillion of debt largely due to the strident Zero-COVID lockdowns and testing demands of Beijing.

As such, property developers are only typically allowed to cut prices by a maximum of 15%. In May, two companies in the city of Kunshan near Shanghai offered discounts of up to 25% and were heavily fined. But without prices being allowed to drop, it’s very hard to stimulate demand. Not least because China’s real estate market is 85-90% new build (compared to typically 20% in the U.S.) Most new builds are sold on a pre-sale model, but with confidence across the sector decimated, it’s even harder to convince buyers these represent a sound investment when the developers themselves may not exist in a few months’ time.

Chong Ja Ian, a China specialist at the National University of Singapore, says that a problem is the Chinese leadership’s impulse to address every problem by increasing control. “That might work in terms of a Leninist system and the individuals within an organization,” he says, “but it doesn’t quite apply to the market.”

But even if housing prices were allowed to fall, another problem arises. China already has at least 50 million empty homes—or 12.1% of the entire housing stock—that owners sit on for capital appreciation rather than renting out for peanuts. (The value of a new home in China plummets as soon as it’s been occupied, much like driving a car off the dealership lot.) Were the prices of new-build homes from developers to drop significantly, these existing owners would be incentivized to mitigate their losses and sell up, flooding the marketplace and delaying a recovery.

Of course, the collapse of China’s real estate market wasn’t a surprise to anyone who followed Guangzhou Evergrande—or the fate of Chinese soccer more broadly, which has long been tied to the health of its real estate industry. In 2021, 11 of the 16 teams of the CSL were owned by property developers—and nearly all now face funding crises. Since 2020, at least 39 professional soccer clubs have folded in China, while eight were barred from joining this year’s season due to financial irregularities such as unpaid player wages. Guangzhou Evergrande, after once burning so bright, was relegated from the CSL last year.

Its academy, too, never did “cultivate soccer stars” for the country, as principal Liu claimed it would back in 2016. Only one graduate has played for Guangzhou Evergrande in the CSL (for a token five minutes) and none for the Chinese national team, which failed once again to qualify for last year’s World Cup in Qatar. The Evergrande Football School has, however, courted controversy to rival its illustrious parent company: in December, it was embroiled in a match-fixing scandal when the opposing team in an under-15 tournament final stopped trying, leading six academy staff to be banned from soccer for life.

Ultimately, China’s soccer ambitions were built on the same real estate bubble as four-fifths of its people’s wealth. It’s a big problem if the latter goes the same way.

Source : TIME

The post China’s Real Estate Crisis Has No Easy Fix—Just Ask Chinese Soccer Fans appeared first on Amora Escapes.

Luxury property developer Berkeley Group has restated its profit forecast, despite the overall downbeat picture with the UK housing market.

Even though earlier this week, the Halifax house price index reported a 4.6 per cent annualised fall in home prices in August, Berkeley repeated its pre-tax profit guidance of £1.05 billion ($1.3 billion) for its 2024 and 2025 financial years.

Because it favours creating luxury and prime properties and tends to concentrate on London, Berkeley is considered to be in a better position to weather the storm currently blowing the wider UK housing market.

But given that the group reported a 35 per cent fall in private sales reservations between May and August, analysts say it is not totally immune to that tempest.

“Demand in the capital’s likely to remain more robust than other areas of the country, but in the short term, there’s plenty of stormy clouds for Berkeley to weather,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

Berkeley, which specialises in turning industrial sites into high-end property, did not acquire new land in the May-August period, preferring to concentrate on pipeline projects given the gloomy economic conditions

“Considerable uncertainty for the UK economy, with persistent high inflation and interest rates, continues to deter investment into brownfield regeneration and the wider house-building sector,” the company said in its trading statement.

Forward sales

“The cash position remains strong which provides a potential buffer against a punishing background and a progressive dividend policy seems likely to be followed, even if the current yield of 3.2 per cent is pedestrian compared to some of its peers,” said Richard Hunter, head of markets at Interactive Investor.

“The group has also noted that build-cost inflation is at ‘negligible’ levels across the portfolio and that forward sales remain robust.”

Nonetheless, going forward Berkeley’s sales projections illustrated that even at the luxury end, demand is being affected.

The group expects its forward sales by the end of October to be about £2 billion pounds, compared with £2.14 billion at the end of April.

Source : TheNationalNews

The post Luxury Developer Berkeley Bullish About Resilience in High-end Property Market appeared first on Amora Escapes.

HONG KONG/NEW YORK, Sept 4 (Reuters) – Country Garden’s (2007.HK) deal with creditors for an extension on onshore debt payments worth 3.9 billion yuan ($536 million) boosted shares in the developer on Monday and gave China’s crisis-ridden property sector some much-needed respite.

Country Garden shares ended 14.6% higher after having jumped as much as 19% to their highest level since Aug. 10. Hong Kong’s Hang Seng mainland properties index (.HSMPI) climbed as much as 10%.

Global shares also rose on Monday, lifted partly by hopes that China’s steady drip feed of policy stimulus might stabilise the world’s second-biggest economy, which has seen its post-pandemic recovery falling away quickly as the property sector cash squeeze worsened.

But while Country Garden investors may be heaving sighs of relief, it remains to be seen whether a raft of stimulus measures will help revive property demand soon, ease the sector’s cash squeeze and lift the gloom over the wider financial system.

Beijing on Monday added to a series of policy measures in recent months to revive its economy, approving the setting up of a special bureau to promote the development and growth of the private economy.

The private sector is responsible for 80% of new urban jobs, but has struggled to attract investment amid a frail economic recovery over the first half of the year, with business owners also constrained by weak domestic demand.

Carlos Casanova, senior economist for Asia at UBP, said that markets rallied after authorities showed that they were taking bigger steps in the last few days to support the property sector.

“Although these are positive measures for sentiment, which should help to stabilise real demand for homes, the sector is not entirely out of the woods yet,” he said, adding developers’ bond defaults were “artificially low” as Beijing tries to defuse the debt risks in an orderly manner.

The worsening financial woes of Country Garden have further highlighted the fragile state of the country’s real estate industry, which accounts for roughly a quarter of the economy and whose debt situation has been dire since 2021.

Considered financially sound compared to peers, Country Garden, China’s top private developer, had not missed a debt payment obligation, onshore or offshore, until it failed to make coupon payments on dollar bonds last month after slowing home demand hurt its cash flow.

Country Garden later also announced a 48.9 billion yuan first-half loss, a record for the developer.

In the past few weeks, Chinese authorities have rolled out a number of measures, the most significant being the lowering of existing mortgage rates and preferential loans for first-home purchases in big cities.

“We will see in the coming months if these supply-side measures are able to revive homebuying demand, which is crucial for the fate of China’s developers and their ability to handle their upcoming debt maturities,” said Tara Hariharan, managing director at global macro hedge fund NWI Management in New York.

She noted that Country Garden and other developers face payments for sizeable maturities this year.

Country Garden itself faces 108.7 billion yuan worth of debts due within 12 months.

In the deal reached late on Friday, a day before the developer had been due to repay its onshore debt worth $536 million, the company will pay its obligations in instalments over three years.

RESTRUCTURING TALKS

The developer, however, is facing a call from some smaller onshore bondholders for the nullification of a deal to extend repayment of a bond, arguing it was unfair and illegal, according to sources and a document.

In a letter opposing the deal, which the sources said has been sent to Country Garden and seen by Reuters, some creditors complained the procedures of the bondholder meetings were unfair and in breach of rules and laws.

Country Garden declined to comment.

Besides the onshore debt extension deal, Country Garden has also wired interest payments tied to a 100 million Malaysian ringgit ($21.5 million) bond that was due on Sept. 2, said a source familiar with the matter.

The source asked not to be named due to the sensitivity of the matter.

The developer has another impending debt payment challenge – the ending of a grace period on Tuesday for last month’s missed coupon payments worth a total of $22.5 million on two offshore dollar bonds.

That it was able to avert an onshore default with the extension deal has raised hopes it will be able to make the interest payments on those bonds, said three of its offshore creditors.

The bondholders declined to be named as they were not authorised to speak to the media.

After making the interest payments by Tuesday, the creditors said they expect Country Garden to enter into restructuring negotiations for its entire offshore debt to avoid a “hard default”, similar to what it did with the onshore creditors.

While China’s property industry may have gained some respite, some market participants said they plan to stay away from the sector until there is a rebound in home sales.

“We sold all our Chinese real estate stocks in April 2020 and haven’t bought back any since,” said Qi Wang, CEO of Hong Kong-based MegaTrust Investment. “Wouldn’t touch the private developers with a 10-foot pole right now.”

Source : Reuters

The post Country Garden Debt Deal, China Property Support Moves Trigger Relief Rally appeared first on Amora Escapes.

There’s a storm brewing in the property insurance market, and companies and consumers alike are starting to feel it.

BlackRock CEO Larry Fink told FOX Business last month that not enough attention is being paid to the fact that major insurance companies are fleeing California and Florida because they cannot raise rates high enough to meet returns. Fink warned, “We’re displacing a really large segment of America today that are not going to be able to afford homeowners insurance if they are in an area of risk.”

Big names including State Farm, Allstate and Farmers Insurance have announced they are not writing new business in California, and seven insurers have been declared insolvent in Florida since early 2022.

The Wall Street Journal recently reported that insurers are looking to raise premiums on auto and homeowners insurance after suffering significant losses due to catastrophe costs, pointing out that several states suffered more than a billion dollars in damages from severe weather so far this year, including Texas, Illinois, Kentucky, Colorado, Tennessee, Arkansas and Missouri.

So what is going on that is causing insurers to reduce coverage and even leave some states altogether? According to David Sampson, president and CEO of the American Property Casualty Insurance Association (APCIA), what is happening is in one sense very simple, but in another, several complex factors are contributing to the problem.

“What you’re seeing right now is that insurers are having to rebalance their book of risk across the country and reduce their risk exposure as a result of number one, continuing record natural disaster losses, and number two, there are a number of other economic and societal pressures that are coming into play here,” Sampson told FOX Business.

Sampson pointed to industry data showing insurers paid a record $275 billion in natural catastrophe losses over the last three years, but that is not just due to a record number of disasters. He said there are four other issues putting pressure on the industry.

The first is inflation. Sampson says decades-high inflation has driven up the cost of covering losses, noting that since the start of the pandemic, home construction materials have surged more than 35% and home construction labor is up 30%.

A second major issue is that reinsurance companies are having to rebalance because the global cost of capital has jumped as interest rates have risen.

“There are more attractive investment opportunities for global capital than the volatile investments in insurance, and so the cost of global capital is much higher,” he explained.

“Reinsurance is a global industry, and so as you have increased natural disasters all over the world, at the same time the capital that is invested in global reinsurance has been tighter and more expensive because there are other places that give higher rates of return with less volatility than in the insurance marketplace.”

A third major problem is unchecked legal system abuse, which was driving the disruption in the Florida insurance market, Sampson said.

That’s a problem the GOP-led legislature and Republican Gov. Ron DeSantis have sought to tackle. The governor’s office says that in 2019, 8.6% of property insurance claims in the U.S. were filed in Florida, yet 76.45% of all property insurance litigation in the U.S. occurred in the state. Florida implemented a series of recent reforms, including sweeping legislation aimed at cracking down on lawsuit abuse, which Sampson says has encouraged the industry.

The governor’s office has emphasized that it will take time for Florida’s recent reforms to kick in, but in the meantime, annual property insurance premiums have soared, jumping 42% this year to $6,000 in the state, compared to the national average of $1,700. Roughly 15% of homeowners in Florida don’t have property insurance, more than twice the national average of 7%, according to the Insurance Information Institute.

But Sampson says the biggest factor of all impacting insurance companies is worsening regulatory restrictions that impede insurers’ ability to manage their risk in a state or to get an adequate rate that covers their risk. He said California is the worst offender, and has an “outdated regulatory regime.”

The 2021 and 2022 wildfire seasons wiped out over a decade of underwriting profits in California, he said, and it is “simply not maintainable” for some insurers to remain in the state due to its regulations.

Sampson said insurers have trouble getting rate increases approved in a timely manner in California, and it is the only state in the nation that does not allow reinsurers to factor in the cost of reinsurance in filings. California also prohibits insurers from using forward-looking catastrophe models, only allowing them to look backward in projecting future losses.

Adding more fuel to the fire in California, since the pandemic, more people have moved into the wildland-urban interface to live near nature, building expensive homes and buildings in the path of more severe wildfires.

“It’s not surprising to me that you’re seeing individual insurers say that we have to completely rethink the amount of risk that we’re willing to ride in California,” Sampson said. “Florida is a very different set of factors than California. Florida is addressing their issues. California, not so much.”

But it’s not just California and Florida having insurance issues, it’s happening around the country.

Sampson said the Midwest has seen record severe convective storms, and devastated crops. Texas has been pummeled by hail. The Northeast experienced a record freeze last Christmas week at exactly the same time that businesses were closed down for the holidays, leading to countless pipes bursting.

“There’s simply no place to hide anymore,” Sampson told FOX Business. “You look at the entire country and the risks are multiplying. [Insurance] rates are not keeping up with rates of inflation, and you add on top of that regulatory dysfunction, or antiquated regulatory systems. It’s not surprising that insurers are having to rebalance their risk.”

Source : YahooFinance

The post Property Insurance Going Up or Away for Many in Brewing Crisis appeared first on Amora Escapes.

The post GCC Investors to Spend $3.2bn in UK Property Market in 2024: BLME appeared first on Amora Escapes.