Prime rents, Hong Kong, SVB and the Mexican peso
Your international property and economics update tracking, analysing and forecasting trends from around the world.
5 minutes to read
Silicon Valley Bank
Not since 2008 have global housing markets been under such stress.
The collapse of SVB bank, the second largest in US history, highlights the extent to which the surge in interest rates is putting banks under strain with repercussions for some industries (tech and life sciences in this case) and some homeowners.
The good news for depositors is governments are stepping in and putting rescue packages in place. Plus, the Federal Reserve will likely change course, or at least pause for breath, after eight rate rises in the last 12 months.
The bad news is that people have yet to learn how far the contagion could spread and its implications on global housing markets. Of the US$61 billion loan portfolio, 55% was to private equity, with only 14% to private banking customers, principally mortgages. Not vast, but enough to knock sentiment off course.
Only a fortnight ago, the FT suggested the US housing market had already turned. Confidence amongst US homebuyers and housebuilders was strengthening, new home sales were on the up and existing home stock remained tight as homeowners opted to stay put.
SVB’s weak spot proved to be two-fold, firstly, its focus on one sector, tech, and secondly, it was wrongfooted by the speed and scale of interest rate rises.
The fallout is global. SVB had an expansive footprint in markets such as the UK, Canada, Sweden, India, and China. By acting quickly, policymakers hope to stave off a wider financial crisis which would reduce mortgage lending and dampen buyer sentiment resulting in a more significant house price correction than we’re currently seeing.
Hong Kong
There are signs the city’s housing market is recovering from last year’s slump. The reopening of borders and the removal of a mask mandate is boosting consumer confidence.
Two developers report selling all their new stock at recent launches. According to Bloomberg, Sun Hung Kai Properties Ltd and Wheelock Properties Ltd sold 352 homes and 303 units, respectively, one on the day of launch and the second over a 10-day period.
Estimates suggest primary transactions could surge more than 50% this year after retreating 52% in 2022.
Knight Frank’s Hong Kong Monthly report for February confirms the pickup in activity. According to the report, authored by my colleague Martin Wong, a total of 3,051 transactions completed in January, up 22% month-on-month. New homes recorded the biggest jump in sales, up 47% on a monthly basis compared to 19% for existing homes.
On the leasing front, more enquiries and viewings were recorded over the month, driven by an increasing number of foreign and Chinese mainland expatriates returning to the city.
Knight Frank forecasts Hong Kong’s prime prices will rise 0-5% in 2023, while prime rents look set to remain stable this year following the border reopening.
Prime rents
Singapore has outflanked New York when it comes to prime rental growth.
The city-state registered 28% annual growth in 2022, pipping New York to the post in Knight Frank’s Prime Global Rental Index .
According to Leonard Tay, Knight Frank’s Head of Research in Singapore, “Around 17,000 new private homes are set for completion in 2023, which should provide some relief to accommodation pressures. However, until such time, it will remain a landlord’s market, and rents are likely to rise further.”
Singapore’s new visa rules, introduced in January 2023, offer a five-year work visa for specific tech-based professionals who earn over S$30,000 per month, the measure is likely to bolster tenant demand further.
Whilst Singapore may still be on an upward trajectory, prime rents globally look to be starting to cool from their post-pandemic highs.
Knight Frank’s Prime Global Rental Index, which tracks the movement in luxury rents across 10 global cities, registered 10.3% growth in Q4 2022, down from 11.8% in Q1 2022.
New York and London registered 19% and 18% annual growth, respectively, down from highs of 38% and 27% respectively earlier in 2022.
Mexico
In this year’s Wealth Report, Flora Harley highlights how only two currencies strengthened against the dollar in 2022 – the Singapore dollar and the Brazilian real.
In 2023, we have a surprising new contender – the Mexican peso.
So far this year the peso is up 6% against the dollar (as at 13 March). Compare that to the South African Rand, which is down 7%.
Will the Mexican buyer be a heavyweight in 2023 across global housing markets? Probably not on a significant scale, a lot of Mexican wealth is stored in US dollars or left the country during previous economic downturns. That said, we may see some heightened activity in favoured markets such as Madrid and Miami.
According to the FT, it’s not the economy that’s driving the peso upwards; the IMF forecasts GDP growth of 1.2% in 2023, but instead a combination of factors. Firstly, interest rate rises, the Mexican central bank has raised rates 10 consecutive times, and the base rate now stands at 11%.
Secondly, the pandemic-induced trend of near-shoring supply chains is supporting the peso. A key manufacturing hub, US and Latin American neighbours are opting to use Mexican-based suppliers instead of those further afield. BMW is spending €800 million expanding production in Mexico, and Tesla has earmarked US$ 10 billion for an EV plant.
According to The Wealth Report 2022, the number of ultra-high-net-worth individuals in Mexico is forecast to increase by 34% in the next five years. Sign up here to receive this year’s wealth forecasts when they’re published in May 2023.
In other news…
China’s consumer spending is showing strong signs of a rebound (Bloomberg), Australia is set to go live with its foreign ownership register on 1 July (International Investment), the ECB is expected to raise rate four more times (Bloomberg) and why these three cities are pulling ahead of the rest (FT)
Sign up for our global research here.