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UK Property Investment news and comments from Mark Harrison of YourPropertyExpert.com

Archive for the ‘Overseas investment’ Category

Chinese Property Prices

Posted by markharrison on January 9, 2011

My reply to a question on Quora about Chinese Property Prices over the last few years.

The question was in two parts – firstly, why have they risen so much, and secondly, will they continue to rise in the same way.

There are three factors which I believe were instrumental in the growth in prices. 

Firstly, shortly after Premier Wen Jiabao took office in 2003, Chinese economic policy changed to allow cheap credit for construction and purchase of property. Interest rates remained low, and lending increased massively through until 2009.

It seems probable that the trend continued in 2010, but year closeout figures have not been officially released, though a report in the Guangzhou Daily based on unofficial figures suggests that average price per sq. m. could have risen by as much as 24% in 2010 – http://www.chinadaily.com.cn/bus… (English-language reporting from China Daily of the Guangzhou Daily story)

It should be noted, however, that compared to the lending practices of Western Europe, Australia, New Zealand and the US over the same period, Chinese lending remained conservative.

Secondly, average incomes rose considerably over the same period. According to a World Bank report in November 2009, property prices had broadly kept in line with incomes. (If anyone could find a direct link to this report, please let me know, and I’ll add a citation).

Thirdly, compared with citizens of the West, Chinese nationals are relatively limited in their ability to invest in overseas markets. Consequently, compared to the West, a higher proportion of Chinese investment went into the domestic market. The natural impact of more investment money being funnelled into a particular market is, of course, inflationary.

There are two hotly debated questions on the future.

Firstly, whether the price increases over the last 7 years genuinely constitute a boom (in the sense of whether they are sufficiently far above historical norms that reversion to the mean would imply that they need to fall relative to earnings.

Secondly, if the Chinese Government determine that prices, indeed, need to fall relative to earnings, they will be able to implement policies that ensure a “soft-landing” (a period in which nominal prices stay fixed, or go up slowly, while nominal incomes rise faster.)

I would counsel you to take anyone making firm predictions with a dose of scepticism. If the period from 2007-date has taught us anything, it is that making accurate predictions about property prices is notoriously difficult.

That having been said, my personal opinion of the economic ability of the Chinese leadership is high. (I speak as a Western European), and the nature of the government structure in the People’s Republic makes it easier for a government to enforce structural changes that it would be for a Western government.

To my mind, therefore, there are two separate risks that need to be assessed, in considering whether a slump will occur.

  1. The possibility that the housing boom will, indeed, prove to have been a bubble, and the Chinese Government be willing, but unable to contain it.
  2. The possibility that the housing boom will, indeed, prove to have been a bubble, and the Chinese Government coming to the view that a quick correction would be in the national interest, and therefore take no steps to prevent such a correction.

It seems, to my mind, that one of these will happen, but whether it will happen in 2011 or later is a matter on which I don’t feel I have enough evidence to comment.

Posted in Overseas investment, Property Investment | Leave a Comment »

This week’s currency movements

Posted by markharrison on June 15, 2008

For some while, I’ve been getting Smart Currency Exchange’s weekly updates on currency movements.Smart is a company I’ve used to transfer money to a company I’m setting up in Canada, and specialises in transfers for business and property-purchase purchases. (Basically, they don’t do small amounts, but have rather better rather than, say, my bank, for sending a few tens of thousands of pounds or more.) This is their weekly newsletter, reproduced with their permission.The rates given are the “inter-bank” rates, for comparison, not the “client rates for sending, by the way”.

Currency Rate Last Week Rate This Week
EURO 1.252 1.268
US$ 1.969 1.943
CAN$
2.004 1.995
AUS$ 2.049 2.075
NZD 2.570 2.600
AED 7.243 7.135
CHF 2.015 2.044
ZAR(Rand) 15.465 15.846

Charles’s Thoughts: Sterling continues to be “steady as she goes”. Over the last few weeks there has been little downward movement which suggests that sterling has found a base from which it may strengthen. The only worry is if we have another shock such as a Northern Rock. UK inflation is the major concern. Not just here in the UK but worldwide. There is even talk that the Bank of England may have to increase UK interest rates sometime soon as a counter to UK inflation. I must admit my feeling is that this is unlikely given the parlous state of the UK economy but the BOE might be “forced” to do a one off increase of 0.25%. I suspect “more steady as she goes” until we see a pick up in the UK economy.

The US$ has gained a bit of ground on the back of high level rhetoric and, if I was to be honest, wishful thinking. The US retail figures for May were better than expected. However US inflation rose sharply in May. Both these events have helped support the market view that we have seen the last reduction in US interest rates for a while. I think this is probably correct but I suspect we won’t see any increases in US interest rates for a while given the level of US personal debt and an already weak economy.

The € has lost a bit of ground against the US$. This is on the back of rhetoric from both sides of the Atlantic with the US talking up the US$ and Euro land talking down the €. This included the European Central Bank trying to make it clear that we will not see a raft of Euro land interest rate increases in the coming months, in fact probably just one. This rhetoric has been successful in the short term and it has to be remembered that Euro land does have some significant problems of its own with some areas suffering very badly from the strong €.

The main mover in the other currencies was the South African rand which lost ground. This was on the back of a less than convincing increase in South African interest rates of 0.5%. The market believed it should have been more, a lot more, so as to counter inflation.

[Declaration: I receive a small commission for any customers I refer to Smart using the above link. This does not affect the price you pay for your currency, since it replaces money that would otherwise be spent on advertising.]

Posted in Overseas investment, Overseas property | Tagged: , | Leave a Comment »

This week’s currency movements

Posted by markharrison on April 18, 2008

For some while, I’ve been getting Smart Currency Exchange’s weekly updates on currency movements.Smart is a company I’ve used to transfer money to a company I’m setting up in Canada, and specialises in transfers for business and property-purchase purchases. (Basically, they don’t do small amounts, but have rather better rather than, say, my bank, for sending a few tens of thousands of pounds or more.) This is their weekly newsletter, reproduced with their permission.The rates given are the “inter-bank” rates, for comparison, not the “client rates for sending, by the way”.

Currency Rate Last Week Rate This Week
EURO 1.245 1.268
US$ 1.971 1.996
CAN$
2.014 2.013
AUS$ 2.122 2.135
NZD 2.481 2.535
AED 7.244 7.331
CHF 1.965 2.047
ZAR(Rand) 15.445 15.48

Charles’s Thoughts: Sterling had a good end to the week. A couple of factors seemed to benefit sterling. Firstly the Royal Bank of Scotland has announced a rights issue which indicates that UK banks have started to restore their balance sheets. Also it is thought that the Government is set to announce next week plans to ease tight conditions in the mortgage market which will help markets. Hopefully these positive factors will allow sterling to regain some equilibrium short term.

The US is enjoying the papal visit. However there has been no divine intervention as regards to the US economy and the expectation is for further interest rate cuts. Still significant economic problems which are weighing on the US$ as it closes in on US$1.6/€1. No relief short term.

The € had an interesting week. Euro land inflation is still at the top end of expectations which means that the European Central Bank will not cut the € interest rates in the short to medium term. However, there are ever rising concerns about the Euro land economy and the strength of the €. The € maintains its “safe haven” status which it has held for a while but pressure is continuing to rise in Euro land.

Sterling had a good end to the week against most of the high yielding and commodity back currencies. Concerns in New Zealand about a possible recession are rising and as such we could start to see weakness for the New Zealand $.

[Declaration: I receive a small commission for any customers I refer to Smart using the above link. This does not affect the price you pay for your currency, since it replaces money that would otherwise be spent on advertising.]

Posted in Overseas investment, Overseas property | Tagged: , | 1 Comment »

The FNMA ups its fees

Posted by markharrison on December 11, 2007

Those who invest in the States have probably come across an organisation called the “Federal National Mortgage Association (FNMA)” (pronounced “Fannie May” – try saying FNMA in an American accent, and you’ll get the idea.)

The FNMA is an odd beast – it was founded as a Government agency in the 1930s, but privatised 30 years later – and has been a private company since, well, before I was born. Despite this, many Americans still believe that it is backed by the US Government (which isn’t true), or at the very least, that the US Government would step in to stop it going under if it had real problems (which might be true, but not something anyone would want to put to the test, particularly with a Republican Government in power.)

What the FNMA does is related to Mortgage Securitisation (if you need a primer on what that it, you can read my article here.)

The FNMA is odd, and basically “takes the risk” on ‘mortgage securities’ (shares in companies whose business is owning mortgage debt.) In exchange for an up-front fee, the FNMA issues bonds, and guarantees to pay back the nominal value of the bond, plus interest at an agreed rate, whether the individual mortgage-payers pay up or not.

In fact, the FNMA, while seen as Government-backed is LESS regulated that many other financial companies – for instance, it can issue these bonds on the basis of having HALF the amount of capital available to repay them that a normal bank issuing such bonds would.

Where is does well is that it sets the maximum size of mortgage it will buy, so it makes it easier for mortgage companies to issue smaller mortgages (because they know they’ll be able to securitise them through the FNMA), thus helping Americans on lower incomes get onto the housing ladder.

Anyway, why I am blogging about them today?

Because, last week, the FNMA quietly added a .25% (quarter per cent) “arrangement fee” to  new mortgages it buys or guarantees.

Which is to say, the FNMA, one of the biggest mortgage-related companies in the world, has suddenly less faith in whether most mortgages will be repaid. This is, to my mind, the US equivalent of the BaseRate/LIBOR divergence I wrote about two weeks ago.

Obviously, in the US, this arrangement fee is inevitably going to be passed on to borrowers, and remember that the FNMA-related borrowers are typically lower-income people trying to buy starter homes.

All this bodes well for the overseas investor trying to invest in the States – if nothing else, it’s made life harder for the domestic US competition.

That’s not to say that investing in the States is risk-free, far from it, just that the pendulum is, after many years of Americans investing in the rest of the world, swinging towards Europeans and Asians investing in the States.

Posted in Overseas investment, Property Investment | Tagged: , , , | 1 Comment »

 
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