home prices

 
 

Australian home prices find a floor in July, outlook improves

SYDNEY: Australia’s hard-hit property markets of Sydney and Melbourne enjoyed a second straight month of gains in an early sign that rate cuts were feeding through although slow wage growth and record household debt means boom times are still distant.

An end to the long downturn will be relief to the central bank, which cut interest rates in June and July to a record low 1%.

Yet, despite Thursday’s data showing home prices across Australia’s major cities rose 0.1% last month, economists are not too hopeful of a solid turnaround.

“July officially marks the end of the longest and deepest house price correction in Australian history,” UBS economist George Tharenou said in a note to clients.

“While prices and sentiment have clearly turned, we remain cautious and do not expect a V-shaped recovery,” Tharenou added.

“Importantly, given the only modest price gains we expect, and still weak volumes, this recovery will likely not be a material boost for consumption.”

Record high household debt-to-income ratio together with stricter bank lending rules and an increasing supply of new apartment units are likely to keep the lid on home prices, further easing pressure on construction activity.

As a result, AMP’s Shane Oliver expects “constrained” low single-digit price gains through 2020.

ANNUAL WAGE RISES

In a sign the property sector turmoil could extend, separate data on Thursday pointed to a slowdown in annual wage rises in new enterprise bargaining agreements (EBAs), with weakness seen across public and private sector firms.

EBAs for the March quarter eased to 2.7% from 2.3% in the period ended September 2018, government data showed.

“This suggests that the gradual improvement we have seen in wages since 2017 may falter, particularly given the recent rise in underutilisation, supporting the need for another rate cut in 2019,” analysts at ANZ said.

June quarter wage price index data is due on Aug. 15 and could point to a slowdown as the unemployment rate hovers at an eight-month high of 5.2%.

Even so, the early signs of house-price revival were seen as a mild positive for Australia’s retail sector, which is reeling from a protracted slowdown.

Housing stock is valued at A$6.6 trillion ($4.52 trillion), or almost four times Australia’s annual gross domestic product.

So, an end of the long property market downturn could be a lifesaver for Australia’s struggling economy, given how erosion of housing wealth undermined consumer confidence and spending power. “Sentiment based measures suggest volumes will pick up in coming months,” said Matthew Hassan, a senior economist at Westpac. A Westpac consumer survey pointed to a likely recovery in sales over the second half.

“Importantly, the next few weeks will also start to see some seasonal shifts,” Hassan added. “While spring doesn’t officially start until Sept. 1, auction markets typically see a lift in clearance rates from around August.”

But there is little cheer for real estate firms.

Australian construction firm Adelaide Brighton downgraded earnings guidance this week amid a steep drop in housing starts.

Residential developer Ralan Group called in administrators this week, becoming the second major real estate company to collapse over the past two months. – Reuters


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British billionaire Dyson buys Singapore’s priciest penthouse

SINGAPORE: British billionaire James Dyson, inventor of the bagless vacuum cleaner, has bought Singapore’s most expensive penthouse, official records show.

The three-story penthouse – once valued at S$100 million ($73.44 million) – sits on the 62nd-64th floor, is equipped with a private pool and located in the heart of the city-state’s financial district.

Dyson, a Brexit supporter, announced in January he is moving his head office from Britain to Singapore to be closer to its fastest-growing markets. His eponymous firm – which also makes bladeless fans, air purifiers and hair dryers – plans to build its first electric car in the city-state.

Wallich Residence’s penthouse sits in the tallest building in Singapore, built by developer GuocoLand Ltd.

Before its unveiling in 2017, the highest asking price for the “bungalow in the sky” reached a dizzying S$100 million, making it Singapore’s most expensive.

Official title records seen by Reuters show Dyson and his wife became tenants of the 99-year leasehold property on June 20. The records did not state the price paid but Business Times reported that Dyson bought the property for S$73.8 million ($54.17 million).

“Given the decision to locate the headquarters in Singapore and the growing focus of the company’s business in the region, of course James Dyson has bought a property there,” a Dyson spokesman said, without giving further details of the purchase.

The 72-year-old has become one of Britain’s best-known entrepreneurs, creating a multibillion-dollar company from an insight that a cyclone could collect household dust better than a clogged-up bag.

Singapore is an island of well-heeled stability that attracts the super-rich from its less-developed Southeast Asian neighbours, as well as multi-millionaires from mainland China.

To cool its property market, the Singapore government intensified property curbs last year after a 9.1% annual increase in home prices and as developers paid record amounts to buy land.

Foreigners now have to pay levies of over 20% to buy property in the city-state under the new rules.


Australia business confidence falls back in June – survey

SYDNEY: A closely-watched measure of Australian business confidence retreated in June even as interest rates hit record lows, though Tuesday’s survey did show sales and employment managed to bounce a little.

National Australia Bank’s index of business conditions rose 2 points to +3, reversing a decline in May. In contrast, the survey’s measure of business confidence retraced its gains and fell 5 points to +2 in June.

“Overall, the survey results for June continue to suggest that the business sector has lost significant momentum over the past year or so,” said NAB Group Chief Economist Alan Oster.

“The recent run of results also suggest that the economy is unlikely to record a significant pickup in growth in Q2,” he added.

The economy expanded at its slowest pace in a decade in the first quarter of the year as consumers kept a tight rein on spending amid sluggish wages and falling home prices.

The Reserve Bank of Australia (RBA) has responded by cutting interest rates by a quarter point in both June and July, taking them to a record low of 1%.

NAB’s survey showed only a limited impact on activity in June. The measure of trading, or sales, edged up 3 points to +6, but profitability stayed soft at -2. Forward orders were also weak at -4.

One bright spot was a 3-point bounce in the survey’s employment index to +5, which hinted at some resilience in labour demand after the official jobless rate unexpectedly rose to 5.2%.

The RBA cited the need to push unemployment down to around 4.5% when it cut rates. Survey measures of inflationary pressure remained weak in June, with retail prices falling amid intense competition.


Weak Australian retail sales, job slowdown point to third RBA rate cut

SYDNEY: Australian retail sales disappointed yet again in May and job vacancies fell from record highs, adding to signs of an underpowered economy and bolstering views the country’s central bank may have to cut rates for a third time this year.

Thursday’s data from the Australian Bureau of Statistics (ABS) showed retail sales rose a pedestrian 0.1% in May after falling 0.1% April, and below analysts’ forecast of a 0.2% gain.

The weak outcome, led by food retailing, department stores and clothing, point to another quarter of slow economic growth after momentum eased in the second half of 2018.

Household consumption has been a major source of worry for the Reserve Bank of Australia (RBA) as miserly wage growth and falling home prices eat into spending power in a sector that accounts for 56% of the economy.

That was a major reason the RBA last month cut its benchmark cash rate for the first time since August 2016. It quickly followed up with a second cut to an all-time low of 1.00% this week in the hope of reviving growth and inflation.

Financial markets are pricing in a near 90% chance of a third cut to 0.75% before Christmas. With another 25-basis-point easing already in the price, the local dollar barely moved at $0.7037.

“Although the RBA would prefer it not to be the case, our forecasts suggest the heavy lifting on policy will still need to be done by monetary policy,” said Citi economist Josh Williamson.

“The key to our view on monetary policy is that the economy will continue to operate with excess capacity for longer than previously expected.”

Underscoring that view, the number of job vacancies fell 1.1% in the three months to May to 241,500 from 244,200 in the Dec-Feb quarter, the first decline since February 2016, separate data from the Australian Bureau of Statistics (ABS) showed. – Reuters


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China’s home prices growth fastest in 5 months, raises policy challenge

BEIJING: New home prices in China rose at their fastest pace in five months in May, complicating government efforts to keep frothy housing markets under control as it rolls out more stimulus for the slowing economy.

Average new home prices in China’s 70 major cities rose 0.7% in May from the previous month, picking up from a 0.6% rise in April and the quickest pace since December, according to Reuters calculations based on National Bureau of Statistics (NBS) data on Tuesday.

That marked the 49th straight month of price gains. Sixty-seven of the total 70 cities surveyed by the NBS reported higher prices in May, the same as April.

On an annual basis, home prices increased 10.7% in May, unchanged from April’s growth rate.

Beijing has repeatedly urged local governments to keep runaway prices under control, but a recent easing in credit conditions, pent-up demand for housing, and an implicit government mandate to prevent a collapse have kept the market surprisingly resilient.

But further curbs on home buyers would risk adding to pressure on China’s economy, which has seen sales slowing due to weaker domestic demand and an escalating trade war with the United States.

Data last week showed the biggest drop in property sales in nearly two years in May, and markedly slower growth in investment and new construction starts, pointing to further economic weakness ahead and more government growth boosting measures.

“If the market becomes overheated policymakers will definitely rush to regulate it,” Zhang Dawei, a Beijing-based analyst of property consultancy Centaline, wrote in a note.

Top Chinese officials including Guo Shuqing, chairman of China’s banking regulator, have warned in recent weeks that Beijing must remain vigilant about property bubble risks.

“History has proven that countries and regions that are overly-reliant on real estate for economic development will ultimately have to pay a heavy price,” Guo told a forum in Shanghai last week.

Some developers have sought to promote sales by cutting prices, which has raised alarm. The Chinese city of Enshi tried to stabilise house prices by urging developers to halt drastic price cuts, threatening punishing measures unless such “wrong behaviours” stopped.

RISKS OF POLICY EASING

China’s home price growth has slowed significantly since the second half of 2017 due to intensive local curbs on speculative investments.

But the trends have been uneven across the country, with recent signs of resurgent price pressures. Some smaller cities with rising inventories have quietly loosened restrictions on home buyers to prop up consumer confidence and demand.

Mortgage rates have also been coming down in some areas in response to regulators’ calls on banks to ramp up lending to support the economy.

The average interest rate on first home loans continued to drop in May to the lowest level since 2018, according to a market report cited by state-backed Economic Information Daily.

New household loans – mainly mortgages – still remained elevated, totalling 662.5 billion yuan ($95.70 billion) in May, and accounting for 56.14% of total new loans last month.

Higher prices were mainly driven by the smaller tier-3 cities, up 0.8% on a monthly basis compared with a 0.5% gain in April, the statistics bureau said in a note accompanying the data.

Prices in China’s four top-tier cities – Beijing, Shanghai, Guangzhou and Shenzhen – saw slower growth in May, increasing 0.3% versus 0.6% growth in the previous month.

Tier-2 cities, which include most of larger provincial capitals, grew 0.6%, unchanged from the rate a month earlier.

Xian, the capital of Shaanxi Province in western China with a population of over 7 million, became the top market performer in May, with prices surging 2% on-month.

Centaline’s Zhang estimates various Chinese government entities announced 41 tightening measures at the city level in May.

“It is still a whack-a-mole game and the intensity of policy tightening so far has not exceeded market expectations,”

“But to a certain extent, these policies will alleviate some upward pressure on the prices.”


Australia’s weak consumer spending bolsters case for rate cuts

SYDNEY: Australian retailers began the second quarter of the year on a gloomy note as sales fell in April in a sign of rising strain on the broader economy just hours before the country’s central bank is seen likely to cut interest rates to record lows.

Tuesday’s data from the Australian Bureau of Statistics (ABS) showed retail sales fell 0.1% in April from March, the first negative reading this year and confounding forecasts for a 0.2% gain.

The decline, led by household goods, eating out and clothing, briefly sent the local dollar to the day’s low of $0.6959. The currency was last flat at $0.6973.

Household consumption has been a major source of worry for the Reserve Bank of Australia (RBA) as miserly wage growth and falling home prices eat into spending power in a sector that accounts for 56% of the economy.

The soggy data will support widespread expectations for at least two cuts this year to 1.00%. Financial markets are pricing in a 50-50 chance of a third move to 0.75% by Christmas.

A cut on Tuesday – the decision is due at 0430 GMT – will be the first since August 2016.

Economists say better days might be ahead, helped by expectations of lower mortgage rates and a boost to household incomes from promised income tax cuts.

A 3% increase in the national minimum wage from July 1 will likely support those on lower incomes, aiding consumption.

Yet, industry-wide wage growth is rising at a snail-paced 2.3% and “if that doesn’t improve then any pick-up in retail spending will be short-lived,” said Callam Pickering, APAC economist for global job site Indeed.

TWO SPEED ECONOMY

In contrast to the gloomy household sector, businesses are holding up better.

Other data released on Tuesday showed exports added 0.2 percentage points to first-quarter gross domestic product (GDP) led by booming demand for Australia’s resources, notably iron ore.

The trade surplus ballooned to $13.6 billion in the March quarter, easily the highest on record, offsetting much of the country’s perennial deficit in income, which includes dividend and debt payments, investment flows and the like.

As a result, Australia’s current account deficit shrank to just A$2.9 billion, better than an upwardly revised A$6.3 billion deficit in the previous quarter and the smallest since mid-1997.

That follows data on Monday showing a decent increase in first-quarter company profits together with higher wages, prompting some economists to upgrade their GDP forecasts.

Data, due 0130 GMT on Wednesday, is now likely to show Australia’s economy grew 0.5% for the first quarter, from earlier expectations of 0.4%. Annual growth is still seen slowing to a decade-low of 1.8%.

“In light of the data… we are nudging up our estimate for Q1 GDP from 0.4% q/q to 0.5% q/q,” said Ben Udy, Singapore-based economist for Capital Economics.

“The big unknown is still consumption spending.” – Reuters