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Capital Appreciation set to rise more than expected this year

Ross Collins — Fri, 26 Jan 2024 11:25:19 +0000

Investors relying on capital appreciation are in for a pleasant surprise in 2024 according to Knight Frank.

Tom Bill, head of the agency’s residential research team, says: “In October, financial markets were pricing in a single interest rate cut of 0.25 per cent by the end of 2024. [Now] they are expecting five. The main reason for this changing outlook is that inflation is falling faster than expected. As a result, mortgage lenders have dropped their rates fairly significantly in recent weeks, partly to win business in a low-volume market.

“The best five-year fixed-rate mortgage is now under 4.0 per cent, which was made possible after the five-year swap rate fell a full percentage point over the final quarter of 2023. As a result of this more positive backdrop, we have revised our UK house price forecasts from three months ago.”

On the sales side Knight Frank now expects UK mainstream prices to rise by 3.0 per cent in 2024, which compares to a decline of 4.0 per cent predicted in October. It expects cumulative growth of a meaty 20.5 per cent in the five years to 2028.

Bill states: “Data from Halifax and Nationwide certainly suggests a corner is being turned. While the former reported a 1.7 per cent increase in 2023 and the latter posted a fall of 1.8 per cent, that compares to a 5.0 per cent decline that both identified in August. With UK housing transactions a fifth below their five-year average, we waited until a clear pattern emerged showing prices were bottoming out, which we believe is now the case.

“As a result of stronger demand, the number of mortgage approvals was 10 per cent higher in November than the previous year and we expect a double-digit percentage increase in sales volumes this year compared to 2023.”

On the lettings side, Knight Frank says landlords have left the sector in recent years due to extra red tape and taxes, which has put strong upwards pressure on rental values.

However, supply is recovering as demand is gradually being absorbed and more sellers have become landlords in a sales market where price growth has been minimal.

Bill says: “New listings in Prime Central and Prime Outer London were only seven per cent below the five-year average in December, Rightmove data shows.

We have not altered our rental forecasts dramatically from October and forecast 5.5 per cent rental value growth this year in PCL, which would be lower than the 8.0 per cent registered in 2023. Meanwhile, we expect a 4.5 per cent increase in POL, down from 6.8 per cent in 2023.

“Rental value growth should be stronger in lower-value markets as the supply/demand distortions are greater. Property owners are typically more discretionary in higher-value markets and have been able to let while price growth has been flat.

“There were 4.3 new prospective tenants for every rental listing below £1,000 per week in PCL and POL in the final quarter of last year, Knight Frank data shows. Above £1,000 per week, the figure was 2.7.”

Source: PropertyInvestor

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Commercial Real Estate Investors Risk Painful Losses in Post-Covid World

Aaron Maxwell — Mon, 07 Aug 2023 11:36:48 +0000

LONDON/SYDNEY, July 31 (Reuters) – Commercial real estate investors and lenders are slowly confronting an ugly question – if people never again shop in malls or work in offices the way they did before the pandemic, how safe are the fortunes they piled into bricks and mortar?

Rising interest rates, stubborn inflation and squally economic conditions are familiar foes to seasoned commercial property buyers, who typically ride out storms waiting for rental demand to rally and the cost of borrowing to fall.

Cyclical downturns rarely prompt fire sales, so long as lenders are confident the investor can repay their loan and the value of the asset remains above the debt lent against it.

This time though, analysts, academics and investors interviewed by Reuters warn things could be different.

With remote working now routine for many office-based firms and consumers habitually shopping online, cities like London, Los Angeles and New York are bloated with buildings local populations no longer want or need.

That means values of city-centre skyscrapers and sprawling malls may take much longer to rebound. And if tenants can’t be found, landlords and lenders risk losses more painful than in previous cycles.

“Employers are beginning to appreciate that building giant facilities to warehouse their people is no longer necessary,” Richard Murphy, political economist and professor of accounting practice at the UK’s Sheffield University, told Reuters.

“Commercial landlords should be worried. Investors in them would be wise to quit now,” he added.

WALL OF DEBT

Global banks hold about half of the $6 trillion outstanding commercial real estate debt, Moody’s Investors Service said in June, with the largest share maturing in 2023-2026.

U.S. banks revealed spiralling losses from property in their first half figures and warned of more to come.

Global lenders to U.S. industrial and office real estate investment trusts (REITs), who supplied credit risk assessments to data provider Credit Benchmark in July, said firms in the sector were now 17.9% more likely to default on debt than they estimated six months ago. Borrowers in the UK real estate holding & development category were 4% more likely to default.

Jeffrey Sherman, deputy chief investment officer at $92 billion U.S. investment house DoubleLine, said some U.S. banks were wary of tying up precious liquidity in commercial property refinancings due in the next two years.

“Deposit flight can happen any day,” he said, pointing to the migration of customer deposits from banks to higher-yielding ‘risk-free’ money market funds and Treasury bonds.

“As long as the Fed keeps rates high, it’s a ticking time bomb,” he said.

Some global policymakers, however, remain confident that the post-pandemic shift in the notion of what it means ‘to go to work’ will not herald a 2008-9 style credit crisis.

Demand for loans from euro zone companies tumbled to the lowest on record last quarter, while annual U.S. Federal Reserve ‘stress tests’ found banks on average would suffer a lower projected loan loss rate in 2023 than 2022 under an ‘extreme’ scenario of a 40% drop in commercial real estate values.

Average UK commercial property values have already fallen by around 20% from their peak without triggering major loan impairments, with one senior regulatory source noting that UK banks have far smaller property exposure as a proportion of overall lending than 15 years ago.

But Charles-Henry Monchau, Chief Investment Officer at Bank Syz likened the impact of aggressive rate tightening to dynamite fishing.

“Usually the small fishes come to the surface first, then the big ones – the whales – come last,” he said.

“Was Credit Suisse the whale? Was SVB the whale? We’ll only know afterwards. But the whale could be commercial real estate in the U.S.”.

CUTTING SPACE

Global property services firm Jones Lang LaSalle (JLL.N) – which in May pointed to a 18% annual drop in first quarter global leasing volumes – published data this month showing prime office rental growth in New York, Beijing, San Francisco, Tokyo and Washington D.C. turned negative over the same period.

In Shanghai, China’s leading financial hub, office vacancy rates rose 1.2 percentage points year-on-year in Q2 to 16%, rival Savills (SVS.L) said, suggesting a recovery would depend on nationwide stimulus policies succeeding.

Businesses are also under pressure to slash their carbon footprint, with HSBC (HSBA.L) among those cutting the amount of space they rent and terminating leases at offices no longer considered ‘green’ enough.

More than 1 billion square meters of office space globally will need to be retrofitted by 2050, with a tripling of current rates to at least 3%-3.5% of stock annually to meet net-zero targets, JLL said.

Australia’s largest pension fund, the A$300 billion AustralianSuper, is among those on the sidelines, saying in May it would suspend new investment in unlisted office and retail assets due to poor returns.

Meanwhile, short-sellers continue to circle listed property landlords the world over, betting that their stock prices will sink.

The volume of real estate stocks lent by institutional investors to support shorting activity has grown by 30% in EMEA and 93% in North America over the 15 months to July, according to data provider Hazeltree.

According to Capital Economics, global property returns of around 4% a year are forecast this decade, compared with a pre-pandemic average of 8%, with only a slight improvement expected in the 2030s.

“Investors must be willing to accept a lower property risk premium,” Capital Economics said. “Property will look overvalued by the standards of the past.”

Source : Reuters

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Saudi Arabia allocates $267m to Intellectual Property Strategy

Tyrone Santiago — Mon, 26 Dec 2022 13:42:48 +0000

RIYADH: Saudi Arabia has allocated a budget of SR1 billion ($267 million) for its recently launched National Intellectual Property Strategy to support inventors in the Kingdom and diversify its economy.

The budget of the NIPS, which was launched last week by Crown Prince Mohammed bin Salman, has been agreed to be distributed over a five-year period until 2028.

This strategy will be implemented through 12 initiatives which include 54 projects, according to Sami AlSudais, the vice president for Intellectual Property Policies and Partnerships at the Saudi Authority for Intellectual Property.

He further noted that the national strategy proposals are being executed by 37 governmental and private agencies.

Al-Sudais added that the NIPS intends to significantly increase inventors’ quantity in the coming period.

“The number of inventors in Saudi Arabia today is about a thousand, and we look forward to reaching this number to 13,000 in 2028,” he stated in an interview with Asharq Business on the sidelines of a press conference in Riyadh.

This strategy takes Saudi Arabia one step closer to its Vision 2030 goal of enhancing its position as one of the top ten countries on the Global Competitiveness Index by 2030, from its current ranking of 24.

In addition, it will also help uplift the Kingdom’s position on the International Institute for Administrative Development index in the field of intellectual property protection, from 34th place to reach the top 20 countries in this field in five years.

Al-Sudais added: “Today, Saudi Arabia is witnessing applications for intellectual property rights at a rate of 95 trademarks per million inhabitants, and our goal is to reach this number to 200 trademarks within five years.”

The NIPS is centered around four pillars — IP creation, IP administration, IP commercialization and IP protection — which will only be reached through enhancing cooperation and integration between the different national entities involved, as stated by the Saudi Press Agency.

“The adoption of NIPST supports the empowerment of innovators in various fields to build an ambitious country and a diversified and prosperous economy for the Kingdom and attracts interested researchers, entrepreneurs and innovators from Saudi Arabia and around the world towards innovation, creativity and respect of IP rights,” said SPA.

Source : ArabNews

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