Will the ECB raise interest rates as the economy slows?
The euro, on 8th August, was at its lowest strength against the dollar in almost eight years as traders pared bets that the European Central Bank (ECB) would raise interest rates as the economy slows.
Klaus Liebscher, ECB council member, said the bank remained focused on the ‘worrying’ level of inflation, according to Market News.
The euro traded at $1.51 in London, after earlier falling to $1.49, the lowest level since 26th Feb, from $1.50 at the end of last week. Against the yen, the euro was at 165.33, rebounding from a two-month low of 163.65. It was at 165.38 on 8th August.
A Government report released later this week will probably show that inflation in the euro region accelerated to 4.1% in July, more than double the ECB’s ideal of 2%.
Non-euro countries have lower unemployment
Latest official statistics from the European Union’s Eurostat office showed that all three Baltic states remained below the average EU unemployment rate of 6.8% in June.
Estonia recorded the fourth-lowest rate in the EU with 4.1%, followed not far behind by Lithuania on 4.3%. Latvia’s rate of 5.7% was significantly higher but still better than the EU average and markedly better than the rate in countries which have adopted the euro as their national currency, where the combined rate was 7.3%.
Despite being the first European state to officially go into recession this year, Denmark had the lowest unemployment rate in the EU at just 2.1%. At the other end of the scale were Slovakia and Spain with 10.5% and 10.7% respectively.
NSI flash estimates 6.3% economic growth
Bulgaria ’s economy grew by 6.3% year-on-year in Q2 2008, according to the National Statistics Institute (NSI) in a flash estimate.
However, NSI cautioned that flash estimates were an experimental practice and should not be interpreted as official preliminary data concerning the level and growth rate of the gross domestic product (GDP). Available data showed growth in the industrial sector was around 8.4% with services growing by 5.7% and agriculture by 2% and household consumption was also up by 7.1%.
One year earlier, in Q2 2007, real economic growth was 7.3% but, at the end of 2007, Bulgaria’s GDP growth was at 6.2%, as floods crippled agriculture and destroyed a large part of the harvest.
This year, however, the country is expecting a bumper crop, with 4.4 million tons of wheat expected to be harvested and in the first quarter of 2008, GDP growth was 7%. NSI will release preliminary data for second-quarter economic growth on 15 th September.
Ireland’s GDP rose by 6%
Ireland’s gross domestic product (GDP), according to national income and expenditure statistics from the Central Statistics Office (CSO), rose by 6% in 2007 and gross national product (a measure of an economy’s total output) rose at a slower rate of 4.1% during the year.
Elsewhere, personal expenditure increased by nearly 10%, while Government expenditure rose by just over 10%. The current account deficit was €10.3bn during the year.
The figures relate to 2007, before the economic downturn took affect.
Retail market saturation in Prague
Retail market saturation in Prague and in many other regional Czech cities is starting to be felt by developers, according to global property adviser DTZ.
In a note on the Czech retail market, DTZ said: ‘The golden age of Czech retail, when practically every project was a success, has ended’. This has resulted in many retail developers seeking out expansion in Ukraine, Russia or Romania, where the demand for consumer goods is gaining strength.
While retailers in Czech cities can expect tougher competition and potential problems at some shopping malls, particularly in regions where salaries are less than the Prague average, it ‘certainly doesn’t mean a slump in the whole sector. After all, Burger King and Starbucks for example are only just now establishing themselves in the Czech Republic and other major players like Praktiker are still lacking here’, according to DTZ. The advisor believes the gastronomy sector in particular offers significant growth potential.
Spanish property prices fall 30%
Spanish property prices have fallen by 30% since Spain’s economic downturn began last year, said Santiago Baena, president of the API real estate agents’ association.
Speaking at a recent conference on Spain’s property crisis, Baena said that the adjustment in Spanish property prices currently underway is “brutal”, and that the situation this year is “radically different” to last year when the sector was already “absolutely paralysed”.
According to Baena, Spain’s construction sector won’t stabilise in the near future but will start to recover in 2009.
Baena also pointed out that many of the sector’s problems were due to a lack of regulation in the sector, and called for more legal protection for consumers. He recommends stronger legislation and the introduction of professional qualifications for real estate brokers as currently anyone can operate without adhering to any code of conduct.
Baena then blamed the downturn on banks, who he said lent with “enormous generosity” in the good times, but who “currently won’t lend to anyone”. He accused them of doing a disappearing act “when the going gets tough”.
Worldwide News
No of resi property buyers at lowest level in four years
The number of people buying residential property in South Australia has slumped to the lowest level in almost four years, according to Australian Bureau of Statistics (ABS), with 4,331 home finance commitments recorded across the state in June which is the lowest result since September 2004, when 4,317 loans were taken out.
The ABS figures revealed a falling number of home loans since hitting a peak in January, when 5,722 home finance commitments were recorded which was the highest number since the bureau began recording monthly results in October 1975. The June figure was also well down on the same month last year, when 5,400 loans were taken out.
The trend has been reflected across Australia, with the ABS figures showing the number of home loans taken out nationally in June were 50,294, which was the lowest since June 2004.
The figures are the latest sign of a dramatic easing in the state’s real estate market and followed slowing growth in house prices and falling auction clearance rates.
Adelaide’s median house price increased by +4.3%, from $350,000 to $365,000, in the six months to the end of June, according to the Real Estate Institute of South Australia (REISA) and auction houses’ success rates dropped to 33% over the last two months. Robin Turner, REISA president, said the figures were evidence of the end of the property boom.
New real estate laws, which came into effect on 28 th July, have also created some uncertainty among buyers. Under the new laws, properties can only be advertised with an agreed price by both the sales representatives and the vendor meaning that dummy bidding has been outlawed and all bidders at auctions must now be registered.
Credit crisis rocks global commercial deals
World sales of major commercial properties fell by 49% to $306bn in the first six months of 2008 from the same period last year, as sales in developed countries were hit hard by the credit crisis and slowing economies, according to a report by Real Capital Analytics.
The company said dramatic shifts in the capital flows for commercial property became evident in the first half of 2008 as Tokyo overtook London and New York as the most active sales market, and investors began favouring Asian markets. Sales activity fell sharply in many developed Western economies while Brazil, Russia, India and China, and most other emerging markets posted gains. Emerging markets accounted for 25% of all property sales in the first half of 2008, up from 10% in the same period a year ago, according to the report.
Development sites were the only type of property to see a rise in sales, up 11%, and led by a record $2.3bn paid for Chelsea Barracks in London by Qatari Diar. The report said: ‘However, with new developments in Europe being delayed and new regulations limiting land sales in China, this sector may soon experience the same declining investment other property types have.’
Overall office sales were down -60% in H1 2008 versus a year ago, and sales of hotels were down -68%. Sales of shopping centres were down -54% in this period and industrial properties, comprising of warehouse and distribution centres, fell -38%. Apartment building sales were also down by -34%.
Egypt’s central bank raises interest rates again
Egypt’s central bank raised interest rates for the fifth time this year to tame inflation running at over 20%, as it increased both deposit and lending rates by 0.5% meaning that its overnight deposit rate is now 11% and its overnight lending rate is 13%.
The central bank’s Monetary Policy Committee (MPC) said domestic food price inflation was broadly unchanged in June but it sought to stop global commodity price inflation from driving up other costs.
Egypt’s Government has said that bringing inflation down is a high priority as low wages and soaring food and fuel prices triggered violent protests in some areas earlier this year.
The central bank moves were in line with forecasts by analysts, who had expected a rise of 0.25 or 0.5%. They said the rate rises suggested the bank expects last month’s data to show higher inflation, despite some signs pressures might be easing.
Egypt’s central bank said it would not hesitate to adjust rates again to ensure medium-term price stability. It has raised rates by a total of 2.25% this year as rising prices emerged as a tough challenge for the Government, which increased fuel prices in May to help finance pay raises for public sector employees.
Property prices in Abu Dhabi will rise until 2012
A new report by Morgan Stanley has predicted that property prices in Abu Dhabi are set to continue rising until at least 2012, by which point supply is expected to catch up with demand.
This is fuelled by a shortage of properties, caused in part by the effects of the building moratorium of the 1990s, meaning that some workers are forced to commute from Al Ain or Dubai.
The Morgan Stanley report also found that rental increases across all sectors were likely to continue for a minimum period of two to three years. The Abu Dhabi Government has already launched intensive investment programmes to boost the supply of property.
The initiatives include recent legislative changes allowing non-nationals to own units on 99-year leases, as well as plans to invest $275bn over the next five years on infrastructure developments and real estate projects.
Despite these plans, and the introduction of a 7% rent cap in 2007, which was reduced to 5% in January 2008, findings by HSBC bank put the average annual rent increases across Abu Dhabi at 22%.
Rental charges at the top end for villas in the emirate now average from Dhs200,000 for two-bed properties to Dhs350,000 for four bedroom houses, which was slightly higher than the average for most Dubai communities. Trends showed that the annual increase in rental prices will average out at approximately 30% until supply catches up with demand.
Three bedroom houses in the Manazel and Al Reef developments can cost an average of Dhs1.7m and Dhs2.2m respectively and five-bed properties in the same areas average Dhs3.15m and Dhs3.1m.
Morgan Stanley has based the prediction of a 2012 slowdown in price increases on the amount of units set to hit the market, balanced against the emirate’s estimated population growth.
US economy to slow more sharply in the coming months
US economic growth is expected to slow more sharply in the coming months than previously forecast with employers shedding staff into next year, according to a Philadelphia Federal Reserve survey.
Economists lowered their forecasts for third-quarter gross domestic product growth (GDP) to a 1.2% annual rate from the previous 1.7% estimate, according to the bank’s quarterly Survey of Professional Forecasters.
The Philadelphia Fed said: “Growth in US real output over the next few quarters looks slower now than it did just three months ago.” In the fourth quarter, the US GDP growth forecast was slashed to 0.7% growth, from the previous 1.8% forecast. US GDP grew 1.9% in Q2 2008, according to the Government.
The current survey also forecasted the US unemployment rate at 5.7% in the third quarter, above its previous 5.4% forecast, then rising to 5.8% in the fourth quarter.
The US unemployment rate rose to a four-year high of 5.7% in July, when 51,000 non-farm jobs were lost, according to Government data. Economists expect employers to shed jobs at a slower rate in the first three months of next year before recruiting workers in the second quarter of 2009.
Tokyo overtaking the world in commercial property sales
Tokyo overtook London and New York to lead in commercial property sales in the first half of this year, according to Real Capital Analytics.
Sales of office buildings in Japan jumped +103% to $12.6bn in H1 2008, while US office sales fell -69% to $28.6bn and the UK’s office sales fell -64% to $11.4bn, according to the firm’s midyear review. Globally, office transactions fell -60% to $108bn and sales of all types of commercial property fell -49% to $306bn.
Increasing Japan’s total, the Government-controlled bank Resona Holdings sold its Tokyo headquarters to Mitsubishi Estate for $1.6bn, Shinsei Bank sold its head office for $1.1bn to a Morgan Stanley fund and Citigroup sold its 22-story Tokyo headquarters to Morgan Stanley for about $448m.
Dan Fasulo, managing director and head of research at Real Capital, said: “Banks are all looking to raise capital and many have identified real estate as a way to raise cash in an efficient manner. From the buyer’s perspective, sale and leaseback arrangements with large corporate tenants offer returns with relatively low risk. Tokyo office vacancies hovered around a seven-year low in H1 2008, and long-term leases by major tenants are attractive in this climate. Buyers have been looking for havens and these office properties can offer that.”
In the US, the largest sale of an office building in the first half was Macklowe Properties’ sale of the General Motors Building in New York for $2.8bn to a group led by Boston Properties and this was the most paid for an office building in US history.
