RICS Global Real Estate Weekly
2nd September 2011
Chinese investment remains elevated The National Bureau of Statistics (NBS) releases the August inflation figures on Friday 9th, alongside data on “A concern for industrial production (IP) and fixed manufacturing is asset investment (FAI). Consumer the weaker external prices rose by 6.5% in July, the biggest outlook” uptick since June 2008. Significantly, food prices - a politically sensitive topic in China - jumped by 14.8%, increasing the pressure on policy makers. High inflation prompted Premier Wen Jiabao only on Thursday to signal that controlling inflation remains the top priority in the coming months. This warning comes on the back of a further tightening of monetary policy, by increasing banks’ reserve requirements (as opposed to outright interest rate hikes).
a ‘hard landing’. Specifically, annual investment into housing construction picked up in July to 33.6% and the forward looking indicator of housing projects under construction also showed improvement. In particular, the large affordable housing program, which aims to provide 10 million “Despite this, there has been some units by the end of 2011, is progressing well as official figures suggest that 72% had positive news on been started by July. In addition, firm the domestic front” employment growth and further wage gains, as suggested by the latest PMI readings, should support consumer demand going ahead.
Investment into housing projects is very strong Annual % change
Meanwhile, the latest PMI readings for manufacturing suggest industrial production may begin to stabilise at a moderate growth trend after easing earlier in the year. The NBS PMI ticked up slightly in August, to register at 50.9 compared to 50.7 in July, reversing four consecutive monthly declines. Annual growth in industrial output eased a touch in July to 14% from 15.1% in June. A concern for the manufacturing sector is the weakening outlook for external demand, as the uncertainty resulting from sovereign debt problems in the United States and Europe weighs on the global growth profile. Notwithstanding this, there has been some better news on the domestic front. Fixed investment increased at a greater pace in June and July, suggesting the slow down experienced through April and May was more a small moderation and should put an end to all talk of
40 35 30 25 20 15 10 5 0 2008
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Portuguese housing market outlook is deteriorating “The economic outlook has deteriorated further in Portugal”
The RICS/ Ci Portuguese Housing Market Survey (PHMS) was launched in September 2010. It is a monthly sentiment survey of residential agents and developers based in the Lisbon, Porto and Algarve markets. The format of the survey is almost identical to the well known RICS UK Housing Market Survey; the main difference is that it includes developers as well as agents.
Unsurprisingly, house prices in Portugal are falling; the headline net balance was -55 in July i.e. 55% more respondents reported falling
Demand is the main factor weighing down on prices
rather than rising prices and it has been hovering around this level since the survey’s inception. The main factor weighing down on prices is falling demand, as indicated by the new buyer enquiries net balance of -24. Indeed, the evidence suggests that rising supply is not an issue in the Portuguese market, given that the new vendor instructions net balance stands at -26 and has been negative all year. Another key trend revealed by the RICS/ Ci survey is that residential agents are experiencing much sharper price falls than developers (the agents net balance is -69 versus -26 for developers). The forward looking components (for the next three months) of the survey highlight that both price expectations and sales expectations remain deeply negative, with respective net balances of -61 and -37. Beyond the next three months, Portuguese house prices are likely to continue falling during the remainder of H2 and in all likelihood through 2012. Although the economy stabilised in Q2, leading indicators suggest the risks to the outlook are again skewed to the downside. Indeed, the European Commission’s monthly Economic Sentiment Index for Portugal deteriorated sharply in August from 97.9 to 94.3, the lowest level since January 2010. The weakening economy, in turn, is likely to feed through to the labour market, putting “As a result, upward pressure on the already elevated house prices are unemployment rate of 12.3%. likely to keep Consequently, the prospect of a meaningful recovery in the Portuguese housing market falling through to us seems very remote, at least over the 2011/2012” next 12-18 months.
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RICS Global Real Estate Weekly Polish economy strong but downside risks are increasing The National Bank of Poland (NBP) meets on Wednesday 7th to consider the case for a further tightening in monetary “Q2 GDP was policy. The NBP chose to leave the key reference rate on hold at 4.5% at its last better than meeting in July following the 100 basis expected... ” point increase in the reference rate sanctioned during the first half of the year. At that time, the accompanying statement indicated that the authorities believed that the measures taken to date would be sufficient to ‘enable inflation to return to target in the medium term’. However, the recently released Q2 GDP data may cast some doubt in the minds of policy makers that this goal will indeed be met; significantly, the headline GDP number came in marginally ahead of expectations with domestic demand driving the firm performance.
addition, the Q3 Senior Loan Officers Opinions Survey suggests that demand for mortgages is likely to continue to increase in the near term with the outlook for the market and an improvement “...but with the in lending terms being the key factors global growth underpinning this trend. Against this outlook somewhat mixed backdrop and growing deteriorating, the concerns about the growth trajectory NBP is likely to elsewhere around the world, our suspicion is that the NBP will leave policy on hold not remain on hold for just at the forthcoming meeting but for the the time being” balance of 2011.
Polish home loans continue to rise sharply PLN bn
300
Even so, it seems improbable that the hawks at the NBP will argue for another hike in rates at this stage. Higher frequency data referring to the early part of the third quarter is looking a little softer with both retail spending and industrial production recording falls in July and exports and imports broadly flat. Despite this, the news flow emanating from the real estate sector remains reasonably upbeat. The most recent RICS Global Commercial Property Survey showed expectations remain generally positive in both the occupier and investment markets.
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Meanwhile in the residential sector, prices are a little steadier. However, the July data shows housing loans still growing strongly with particularly big increases in zloty lending (a 28% annual gain). In
200 2009
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Canadian residential construction still robust The coming week sees the release of Canadian new home prices (July) on “Housing starts Thursday 8th followed by housing starts (August) the next day. Annual growth in are 3% above year new house prices edged up to 2.1% in ago levels in June. The monthly increase was 0.3% June” led by Toronto and Montréal, though 10 of the 21 cities and towns reported no change in prices. Existing home prices, as measured by the Teranet/ National Bank Index increased 1.7% year on year in June, the fastest pace since August 2009, driven mainly by the hotspots of Vancouver and Toronto. This will be of slight
Housing starts are being supported by rising house prices 100
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House starts, annualised - left scale 60
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New housing price index - right scale
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concern to the central bank, as they have been warning for sometime of possible overheating in some sectors of the housing market. House builders, encouraged by prices rises, increased residential construction in July. Housing starts picked up by 3% on the year, to 205,000 (annualised rate), the highest level in over 12 months. This was driven by a large increase in multiple family units (apartments and condominiums), with single family housing starts reporting a decline. With new house price growth moderating relative to the previous 12 months, residential construction looks likely to follow suit and hover around the 10 year average of 200k in the short term. The coming week also sees the Bank of Canada (BoC) meeting to set the key interest rate. In light of the 0.4% saar drop in GDP in Q2, the BoC will likely continue to keep monetary policy on hold (though it retains a tightening bias). Indeed, the recent fall in GDP was below market expectations, with the 2.1% drop in exports the main drag on GDP growth, though domestic demand held up well, increasing 0.7% on the quarter. The reason for the weak export performance is widely attributed to supply chain disruptions caused by the Japanese disaster earlier; these temporarily halted the flow of Canadian “Existing house exports to the US. Economic growth is prices rose by 1.7% widely expected to bounce back in Q3 year on year” as the effects of the supply disruptions wane.
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2011 Source: Reuters
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