The comments from Ian McLeod of Thomas Crown Art, follow growing concerns that the global economy is likely to experience a significant slowdown before the end of 2019.
Leading economic indicators tracked by the OECD have weakened since the start of the year and suggest slower expansion over the next six to nine months.
Similarly, the wider global expansion that began roughly two years ago has plateaued and become less balanced, according to the International Monetary Fund.
Mr McLeod observes: “There’s a growing list of investment tailwinds to consider for 2019. These include significant trade tensions, rising interest rates, political uncertainties, including Brexit, and complacent financial markets.
“The US, the world’s largest economy, has, of course, considerable influence on Asian and European economies. As such, should ther US stock market plunge – as it did recently scrapping all of its 2018 gains during a major sell-off - global markets are vulnerable too.”
He continues: “Against this backdrop, we can expect cryptocurrencies will increasingly be seen as investors’ ‘safe havens’ in 2019 and beyond.
“When the downside of the economy hits, digital assets cryptocurrencies like Bitcoin and Ethereum are likely to be viewed by investors as a robust means of storing wealth, in the same way they do with gold.”
Mr McLeod adds: “There are several keys reasons why the likes of Bitcoin and Ethereum will be safe havens. These include scarcity, because there’s a limited supply; permanence, they don’t face any decay or deterioration that erode their value; and future demand certainty as mass adoption of cryptocurrencies and blockchain, the technology that underpins them, takes hold globally.”
Of this latter point, he comments: “As mainstream adoption is going to dramatically gain momentum in 2019 as the world, especially business, realise ever-more uses for and value of crypto and blockchain.
“Ethereum’s blockchain, for instance, is used in our art business. It has allowed us to create a system to use artworks as a literal store of value; it becomes a cryptocurrency wallet.
“It also solves authenticity and provenance issues – essential in the world of art. All our works of art are logged on the Ethereum’s blockchain with a unique ‘smART’ contract.”
The tech expert concludes: “We are some way off from cryptocurrencies replacing the Swiss Franc, the Japanese Yen or gold as the preferred safe haven assets.
“However, as the world moves from fiat money to digital, and as adoption of crypto picks up, there can be no doubt that cryptocurrencies will be firmly in the pantheon of safe haven assets within in the next decade.”
(Source: Thomas Crown Art)
Led by growth in Asia Pacific, the global insurance industry has been experiencing moderate growth in recent years. However, a slowdown in the industry is likely, though growth is going to remain steady.
While the life insurance sector remained the most profitable in 2015, the non-life insurance sector was not far behind, according to Global Insurance Industry - Forecast, Opportunities & Trends 2015-2020, a report recently released by Taiyou Research. The industry remains fragmented, thus increasing the level of rivalry within the market. Large, international companies have more or less entered most countries now and have either driven many smaller players out of business or have formed partnerships with them.
Online insurance is also a rapidly growing business, competing successfully with existing players. Apart from insurance market players, many financial service providers and banks are also entering into the global insurance business, thus creating even more competition for existing players.
Stringent regulations govern the insurance industry and it remains to be seen how this scenario plays out in the coming years.
(Source: Taiyou Research)
Over the last few months, house price hiking has had a dramatic slowdown, highlighting a drop in gears for the property market in the UK. ONS statistics show that over the past 12 months, price increases have seen smaller figures in several UK regions.
Before the slowdown the average increase sat at around 15% yoy, however this is still much less than April 2000 when the yearly growth hit 28.3%.
This slowdown now has an effect on buyers who have until now been hit with steep prices and a lesser equal rise in savings interest.
This week Finance Monthly hears Your Thoughts on the slowdown and how it affects the public, the economy and the housing sector in the UK.
Jonathan Hopper, Managing Director, Garrington Property Finders:
This week’s official house price figures suggest the slowdown is sharper and started earlier than first thought.
April’s surprise election announcement applied a dab to the property market's brakes, but this data confirms it had already dropped down a gear in March.
While the speed and severity of the fall in annual price growth – down to its lowest level for more than three years – will alarm some sellers, such national averages mask the wildly different conditions at opposite ends of the market.
Properties in some regions continue to see double-digit price reductions, while at certain price points in the most in-demand areas, gazumping is back with a vengeance.
Nevertheless the broader trend is undeniable. East Anglia’s gravity defying, double-digit rates of price inflation are a thing of the past and it has been forced to share its ‘fastest growing region’ crown with the East Midlands.
Even London finds itself in a position it is unaccustomed to – close to the bottom of the pile.
The chronic shortage of supply is still propping up prices in many areas and mitigating the slowdown. But this snapshot of a slowing market – taken before the election announcement – confirms what many in the industry had feared. For the housing market, the snap election has come at just the wrong time – injecting an unwelcome dose of uncertainty into an already fragile market.
Nevertheless the lull could be short-lived. If the election delivers a clear result that puts Brexit firmly back on track, the property market could receive a huge boost, freeing up more supply and with greater levels of clarity spurring discretionary buyers into action.
Matthew Cooke, Residential Development Director, YOPA:
For me it’s a question of choosing the short or long game. Playing the short game is going to be challenging, until the fallout of Brexit becomes clear. However if you look at the history of the UK property market, it’s performed consistently as one of the most robust on the planet, just like the economy. Although we are in a soft patch the fundamentals remain the same - there are more buyers looking than quality stock available.
Investors - particularly Asian and Americans where the currency is strong against the GBP - have a superb opportunity to enter the UK market at a more attractive price. Although we are enduring turbulence presently, especially across London new homes and PCL, there are significant reasons to buy for those looking beyond the next two years. London remains a global financial, technology and cultural gateway city.
There’s a silver lining in the form of an advantage for first time buyers in this gear shift. Mortgage rates are low, and they aren’t fighting off as many investors as market reforms, Brexit and stamp duty changes on second homes make there presence known. Price increases have also reduced and sellers are more prepared to negotiate.
For upsizers - I think it’s still a good time to sell. Yes it’ll sting if you end up having to accept £10k less on your property than you’d hoped for, but you can always offset by passing the pain up the chain. Now is a superb time to negotiate yourself the dream family home.
Mark Homer, Co-Founder, Progressive Property:
House prices have continued to fall in Prime London and growth has continued to moderate outside of the M25 with the Midlands and North showing reduced growth too. Overall UK house price growth has slowed to 4.1% in the year to March 2017. With much of the rest of the UK playing catch up to the huge growth in Central London since 2010 the market appears to be taking a breather.
Increased Stamp duty on buy to let properties, 2nd homes and higher end properties from March 2016 has had a negative effect on transaction volumes along with the uncertainties which have been created around Brexit and the UK's future relationship with Europe.
Interestingly, first time buyer purchases have increased since the stamp duty changes showing that the government’s policies to encourage these purchases over those of landlords appear to be working. With some lender’s mortgage rates now reaching their lowest ever rates sub 1% buying a home has become more attractive.
We expect house price growth to return to trend with 5%+ growth once these uncertainties subside and wage growth catches up with prices following a period of increased inflation after sterling devalued immediately after the vote to leave the EU.
James Trescothick, Global Strategist, easyMarkets:
The threat of the sterling losing its role as a reserve currency due to the Brexit is looming over many investors’ minds. Though the GBP is only the third most held global reserve currency, dropping further in the rankings or even losing that status all together, could really have a massive impact on the UK property market.
First of all, the sterling would lose its prestige and would most likely fall against the USD and EURO. In theory, this could encourage investment due to cheaper exchange rates, however the safe haven appeal which the UK housing market uses to attract foreign investors would be lost. The UK relies heavily on this foreign investment to maintain prices. This and the levy on landlords and second-home owners which were introduced last year, are combining together to pressure house prices.
Holly Andrews, Managing Director, KIS Finance:
With regards to house prices in London, what we are seeing is due to a number of factors:
- Stamp duty increases – In particular the increase in stamp duty for properties over £1.5m, with buyers having to pay 12% on any amount over £1.5m. Many people feel it is better to stay or keep existing properties and improve them, saving on the large amount of stamp duty that they would have to pay if they sold and purchased another property. In particular properties worth over £4m have seen a 12% fall in their values, the increases in stamp duty playing a major role.
- Changes in the domicile and non-domicile rules – this has created a feeling that London is an increasingly harder place to reside long term, in particular amongst high net worth individuals. This is another major contributing factor as to why properties in London worth over £4million have seen a 12% fall in value
- Local opinion – the view of the man on the street is very important, and in London, for the first time in 8 years, over 50% of people feel that house prices are going to drop. This low confidence also has an effect on property prices.
- Mansion Tax - Although no mansion tax has been introduced, it is still on the table and a strong possibility in the future. It is therefore still in many peoples’ minds.
- Brexit – A significant decrease in foreign investors buying property in London. Previously buying property in London was seen as an excellent investment for many foreign investors, but with Brexit there is much more uncertainty, leading foreign investors to invest their money elsewhere.
- Investing elsewhere – Property investors nervous of London property values are investing in other parts of the UK such as Manchester and Liverpool. This has a negative effect in London prices, yet a positive effect elsewhere.
- Low interest rates but difficult to obtain funding – The high end properties in London have been worst hit. Properties worth over £4million have seen a 12% fall in their values. Buyers are particularly concerned about this area of the market, making it very difficult to sell these properties, made worse by the high stamp duty charges that these properties attract. Lenders are also nervous about using these properties as security, making it difficult to borrow against them.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Growth expectations for 2017 remain at 2.0%, according to the Fannie Mae Economic & Strategic Research (ESR) Group's May 2017 Economic and Housing Outlook. For the fourth consecutive year, first quarter US growth slowed from the fourth quarter, partly reflecting ongoing seasonality issues. However, incoming data suggest that consumer spending growth will pick up this quarter.
Meanwhile, businesses will likely increase production in an effort to rebuild inventories, turning inventory investment into a positive for, instead of a large drag on, growth. Given the tight labor market, the ESR Group continues to expect rate hikes in June and September. Housing was a bright spot during the first quarter, and home sales performed well going into the spring season, thanks to solid labor market conditions and a recent retreat in mortgage rates.
"Once again, our full-year growth forecast remains intact as the economy grinds along, with the prospect of material policy changes appearing to be delayed," said Fannie Mae Chief Economist Doug Duncan. "We expect consumer spending to resume its role as the biggest driver of growth in the second quarter amid improvements in the labor market. Positive demographic factors should continue to reshape the housing market, as rising employment and incomes appear to be positively influencing millennial homeownership rates. However, the tight supply of homes for sale continues to act as both a boon to home prices and an impediment to affordability."
Visit the Economic & Strategic Research site at www.fanniemae.com to read the full May 2017 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.
(Source: Fannie Mae)
The latest market report from technology M&A advisory firm, Hampleton Partners, reveals a reduction in fintech transaction volume in 2016 whilst overall transaction value remained stable as early hype has been replaced with cautious investment in proven and more established technologies and businesses.
The Fintech M&A report, which covers mergers and acquisitions in the period between July 2014 and December 2016, shows deal values for the first half of 2016 were down 32% from the previous half year. With investors increasingly prioritising profitability and resilient business models, EBITDA multiples fell to 15.0x compared with 15.4x in the previous half-year, while revenue multiples through 2H 2016 also dipped to a four-year low of 2.2x.
Top acquirers
Enterprise financial software companies accounted for 46% of the deal count on the trailing 30-month period, with a total of 689 deals completed.
Broadridge was the top acquirer, buying eight 8 businesses, its most recent acquisitions being investment advisor compensation firm M&O Systems, brokerage and shareholder communications business INVeSHARE and outsourced customer communications company, DST Systems.
SS&C, ICE and IHS Markit came in second place, acquiring six entities each. Other active acquirers included IRESS, Accenture, Envestnet and Digital Asset Holdings.
Search for scale and global consolidation
Deals were driven by acquirers looking to build scale, as well as the opportunity to enhance or replace in-house legacy systems. Hampleton also believes that CBOE Holdings’ $3.2 billion offer for Bats is the latest sign of a push towards global consolidation in the exchanges sector.
Enterprise resource planning and front-to-back office management solutions were particularly sought after. Meanwhile, the growing adoption of cloud and mobile services prompted established players such as SSC&C and Fiserv to buy digital solutions that either complement their existing portfolios or replace them entirely.
Miro Parizek, Hampleton managing partner, says: “Going forward, Hampleton believes that the Fintech M&A marketplace will remain consistent, continuing to deliver attractive multiples for sellers. Despite wider concerns surrounding Brexit and other geopolitical issues, London will remain an investment hotspot for fintech assets with investment activity driven by the three forces of consolidation, compliance and disruption.”
Blockchain and AI
Jonathan Simnett, Hampleton sector principal, adds: “Despite the market focus on mature technologies during 2016, Hampleton expects to see strong demand for blockchain companies and increased interest in artificial intelligence (AI) applications in the coming months as the technologies move to being a key area of focus in financial services. Disruptive alternative payment and lending services will also continue to thrive, attracting more interest from technology majors such as Apple and Google.”
(Source: Hampleton)
According to UK mortgage lender Halifax, February saw the lowest increase in house price since July 29013, going up just 5.1% YoY. This means that house price inflation has halved over the course of 11 months.
Halifax’s housing economist, Martin Ellis says this is down to a sustained period of house price growth in excess of pay rises making it more and more difficult for many to buy a home. He says that this, alongside a reduced momentum in the job market and less consumer spending will equate to a further slowdown in inflation rise throughout 2017.
This week Finance Monthly has heard from a number of sources in the housing markets sector, to see what their thoughts are on the slowdown, and whether indeed more growth curbing is to occur in the coming months.
Neil Bainbridge, Ashcox & Stone:
Why is it slowing down? The key factor in this is uncertainty and it's slowing in some areas and not others. In Swindon, we were looking at six per cent average growth in 2016 in house sales, this year it's predicted to be around four per cent but we are only in March. So far, we've had a strong start to the year and that shows no signs of slowing down. I suspect we will be between five to six per cent by the end of the year.
We have to remember that our economy's growth is consumer led and consumer confidence is attached to our love of property and if people stop having that confidence, spending will slow, credit will slow and consequently growth will slow. it's a fragile position we are in when our economy's growth relies on the confidence of the average consumer.
Things could start slowing as people take stock and think, "if I don't sell my house or buy a new home this year, what's the market going to be like next year? Am I better off sitting tight?" Will they wait for decisions regarding Brexit, interest rates and a wealth of other economic uncertainties?
As a non-Londoner, it seems to me that that market is still very much an 'anomaly' with outside investors with strong currencies against the pound, being able to buy more for their money. However, uncertainty over Brexit may cause those people to think twice before rushing to buy that investment property if concerns over jobs being relocated overseas are realised.
Less of an impact but still one to watch is the trans-Atlantic effect of the American dollar as they consider a rise in interest rates in the USA and that's likely to have a knock-on effect on economies around the world, including here in the UK. Interest rates in the UK are likely to rise at the end of 2017, beginning of 2018 to counteract the inevitable rise in inflation, caused by the increase in food and fuel prices that we are already beginning to see. These are the sorts of headline costs that most affect consumer confidence.
Another factor to bear in mind is the massive effort by the government to put the brakes on the buy-to-let market which is causing a huge number of potential landlords or investors to avoid investing in the property market. But that's a whole other debate.
Professor Ivan Paya, Lancaster University Management School:
The results of our forecasts suggest that house prices in the national and all regional property markets will grow this year. For the UK national market, the considered forecasting models predict a slowdown in the rate of house price inflation to 3.5% in 2017 (we note that the value of the corresponding statistic in 2016 was 4.4%). Although house prices are expected to grow at a lower rate than last year, the two main factors responsible for the positive forecasted growth in the housing market are (i) the sound domestic economic conditions (mainly a healthy growth rate of consumption), and (ii) the fall in the real mortgage rate (mainly due to the recent rise in inflation rate). At the same time, we note a slight reduction in the number of housing starts in the past year, which can also explain the continued positive trend in the national property prices.
When it comes to the regional housing markets, the predicted patterns of property price behaviour vary across regions. We note that expectation about the future interest rate increases, which is an important determinant of housing dynamics in London but not in the other regional markets, is the key factor that puts a downward pressure on the house price growth in this region. On the other hand, we note a small decrease in the ratio of property prices to personal income in the last quarter for the first time since the early 2013. This measure is an indicator of housing affordability, and it has been gradually deteriorating until the third quarter of 2016, when the ratio of prices to income reached its historical maximum. The improvement in housing affordability together with the fall in the real mortgage rate and the sluggish supply of housing are all factors responsible for continued growth in London property prices. According to the forecasting results, housing inflation in London will slow down in the first quarters of 2017, but the growth in property prices is predicted to build up towards the end of the year. Overall, the forecasts indicate a 3.9% growth in London property prices in the course of 2017.
The forecasts predict a similar pattern of house price behaviour in the regions contiguous to London, including Outer Metropolitan, Outer South East and South West. We note that the property market of East Anglia, which is currently growing faster than any other regional market of the country, is predicted to slow down in 2017, but still remain the market with the highest housing inflation (the forecasts suggest that house prices in this region will grow by 5.7% over the year). We see deterioration in housing affordability in all these regional property markets: the ratios of house prices to households’ disposable income are at or close to their historical maxima.
Charles Fletcher, Head of Analysis, Cogress:
The news is not particularly surprising when you consider the series of unprecedented events over the past twelve months that have rocked the UK economy and property market. From the stamp duty changes, to rising inflation rates squeezing consumer-spending power, and the shocking referendum results in the UK, a house price slowdown amidst such economic uncertainty was effectively inevitable.
With that said, property values are still 5.1% higher than they were at the same time last year. Even though the growth rate is slowing, a shortage in supply of both new homes and existing properties will continue to lift UK house prices. Meanwhile, demand for housing is being supported by an economy that continues to perform well with employment still expanding.
Over the next few months, we expect that the UK’s financial resilience will be reflected in the property market. Although prices and transaction levels in prime central London areas like Chelsea and Kensington may keep dropping, this will be offset by properties valued below £1,000,000, which are still trading well. This trend towards more affordable properties is indicative of mounting consumer caution over major spending decisions and the difference between one’s ‘need’ for property and one’s ‘want’ for property. The large disparity between supply and demand for property across the country means that competition will remain fierce for properties at the more affordable end of the market, even against Brexit’s uncertainty. Which means that cities such as Manchester, Bristol and Leeds will continue to benefit from ongoing tenant demand.
While issues of affordability will remain top-of-mind for many UK consumers and first-time buyers, falling house prices in central London represent an opportunity for foreign buyers. Many central London estate agents have been reporting that a large portion of their applicants are $-based buyers hoping to take advantage of currency fluctuations to invest in valuable long-term property assets.
Despite predictions of a price crash, we expect that house prices will continue to grow at a stable rate over the next few months. This is as a result of the country’s sound economic conditions and a resilient property market that can withstand any potential volatility Brexit brings.
Gavriel Merkado, Founder & CEO, REalyse:
The recent announcement that the UK housing market has slowed to its lowest pace in three and a half years was not a surprise. The UK market has experienced a period of instability, with an imbalance in supply and demand leading to properties becoming overpriced. If you pair this with the low interest rates the UK has been experiencing and the relative ease of access to debt finance, you are left with a market that is unaffordable for the masses.
Over the past year, the government has been instructed that to help solve the housing crisis 300,000 more homes must be built in England alone, year-on-year. Despite this goal, we are still experiencing low levels of housebuilding and development, which have subsequently added to high prices. Therefore, it appears that a key reason for the slowdown is affordability.
It will be interesting to see the impact this shift has on the market over the next few months. We have already endured a period of uncertainty following the Brexit vote, and while the initial shock period is calming, implications are still far reaching. Brexit may well lead to an increase in inflation, with the Bank of England forced into increasing interest rates, which in turn may put pressure on the purchasing market.
There is also the impact of movement of EU migrants to consider, with many of them residing in the UK expecting to return home in the lead-up to Brexit. If this does prove to be the case, we may experience a drop in demand for rental property, which in turn could balance out the demand for buying property.
Investors and developers should monitor the situation closely, as we are already noticing a shift in the patterns of growth and decline. Central areas, such as London and Manchester, that were previously viewed as overpriced, could experience a stabilisation in prices, whilst some regional cities and suburban areas, such as Cambridge, could continue to rise in price. Other socio-economic factors, such as the development of the high-speed rail links may also lead to the increase in value of other regional towns and cities.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Here Professor of Urban & Property Economics at Henley Business School, Michael Ball gives his own thoughts on the current real estate market slowdown in the UK, and presents his expectations for the remainder of 2017.
2017 could well be the year when the UK housing market hits one of its periodic turning points after a sustained five-year run of 5 to 10% annual price rises and an up-coming ten-year anniversary since the last crash. Price averages, of course, belie much greater rises in places like London and the South East. Indications of a slowing market abound, particularly with respect to prices and time on the market. Many rightly attribute the slowdown to affordability factors following such strong price growth. Optimistically, that could lead to a less frenetic market with government homeowner initiatives sustaining the expansion in new build. Nonetheless, digging beneath the headlines suggests that many drivers of recent housing market expansion are no longer humming so positively.
Market-wise, Inner London often leads the way and news from there has been bleak for some time and not just at the top of the market. So, Rightmove’s report of a 15% price drop in Kensington and Chelsea for 2016 may indicate lost froth at the top but also raises wider concerns.
The biggest change is the falling away of overseas investment. Uncertainty over the pound plus capital and credit constraints in places like China have all contributed but home-grown factors have played a key part. Though stamp-duty rises are often blamed, some classic bubble features seem to be unwinding, especially in London, related to over-supply and mis-pricing, the super-hyping of neighbourhoods and over-estimates of the long-term demand for small ‘luxury’ accommodation. Chastened investors may take quite some time to return. This is of broader importance because experience following the financial crisis suggests that international activity has wider impacts on the market and sentiment.
Nationally, classic market drivers are turning negative. Earnings have been rising ahead of inflation but forecasts suggest this trend is coming to an end. Moderation in real earnings growth not only dampens house purchase and trading up but it also limits the potential for rent increases, depressing landlord returns.
On the mortgage front, some rise in interest rates is in the offing. Though interest rate rises are likely to be limited in the near future, they may currently have a disproportionate effect on the housing market as affordability is so stretched. Cautious lenders if they fear rising default rates may add higher risk premiums to mortgage rates and restrict lending as well.
Landlords are now major holders and purchasers of homes. They face the prospect of a rising tax burden as relief on some expenses is withdrawn and mortgage interest write-offs gradually limited. Moreover, if the Government’s stated aim of drastically reducing immigration has any effect, landlords will lose a key source of new demand. Poor prospects for rents and tenant demand combined with rising costs and taxes could create a depressing scissors effect on landlord returns, significantly discouraging investment.
Expectations matter and can suddenly switch. That Britain has a housing shortage has clearly been absorbed by home owners and investors alike. But there is a danger of thinking of demand as purely population driven and so always there, whereas it is incomes and affordability that count far more. Variations in them, combined with tight supply, make the UK’s housing market particularly prone to sharp price swings.
Counter to all this gloom is the prospect that an improving global economy may lift the UK and its housing market with it. Nevertheless, the balance of risks is shifting towards the downside. So, forecast-wise, this year may turn out fine but clouds abound and are likely to thicken as the year progresses.
