LONDON, Jan 26 (Reuters) – Britain’s commercial real estate sector is increasingly feeling the pinch of higher borrowing costs, as investor enquiries declined in the fourth quarter and the outlook for the year ahead worsened, an industry survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) said 83% of respondents to its quarterly commercial property survey thought the market was already in a downturn, up from 81% a quarter before. Almost half considered this downturn to be in its early stages.
RICS said investor enquiries fell across all sectors for the first time since the start of the pandemic, with a net balance of -30 of respondents citing lower investment demand.
Tarrant Parsons, senior economist at RICS, said the investment side of the commercial property market was “significantly affected” by the Bank of England’s (BoE) tighter monetary policy, and that higher borrowing costs were weighing on investor demand and hurting valuations.
The BoE’s Monetary Policy Committee raised its main rate at its last nine meetings and markets have priced in a half percentage point increase to 4% for Feb. 2.
British consumer price inflation was running at 10.5% in December, nearly five times the Bank’s 2% target.
Near-term capital value expectations dropped sharply across the board, and the industrial sector saw the weakest reading since 2011.
“Linked to the rise in government bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term,” Parsons said.
Looking at the year ahead, average capital values were forecast to fall further in all parts of Britain.
The survey of 940 companies was conducted between Dec. 7 and Jan. 13.
Reporting by Suban Abdulla; editing by David Milliken
Our Standards: The Thomson Reuters Trust Principles.
HONG KONG, Nov 9 (Reuters) – Chinese property developers’ share prices surged on Wednesday after regulators expanded a financing programme aimed at supporting bond issuance in the crisis-ridden sector.
CIFI Holdings (Group) Co Ltd (0884.HK) soared 40% while Country Garden Holdings Co Ltd (2007.HK) surged 23%. The Hang Seng Mainland Properties Index (.HSMPI) rose 8%.
The National Association of Financial Market Institutional Investors late on Tuesday said it will widen a programme to support about 250 billion yuan ($34.5 billion) worth of debt sales by private firms, including property developers.
The semi-official association under the central bank also said the programme can be expanded further.
“Even though the programme may not actually help developers that much, it’s the message from the central government, showing its determination to stabilise the sector and the economy, that is boosting sentiment,” said Alvin Cheung, associate director of Prudential Brokerage in Hong Kong.
The move comes as cash-strapped property developers struggle to tap sources of funding to finish projects and pay suppliers. Several developers have defaulted on offshore debt obligations in the past year.
More recently, investors have been fretting about the crisis deepening as developers widely believed to have had government backing also missed payments, such as CIFI and Greenland Holdings Corp Ltd (600606.SS).
“We think this is a big step to help ease liquidity for top private developers after recent defaults,” said Jefferies analyst Shujin Chen in a client note.
Still, there will likely be more defaults given weak recovery in property sales, Chen said.
Developers’ offshore U.S. dollar bonds also rebounded. A Seazen 2026 bond was trading at 14.35 cents on the dollar on Wednesday, showed data from Duration Finance, more than 3 cents higher than a day earlier.
Nomura said benefits from the expanded programme are unlikely to be sufficient to resolve developers’ financial woes as prolonged contraction in new home sales may reduce funding sources this year by 3.3 trillion yuan.
The property market continued its slump in October, with private data showing home prices and sales falling, indicating lacklustre sentiment and a bleak outlook amid strict COVID-19 curbs that have rattled consumer confidence.
($1 = 7.2470 Chinese yuan)
Reporting by Xie Yu and Clare Jim; Editing by Edwina Gibbs and Christopher Cushing
Our Standards: The Thomson Reuters Trust Principles.
The logo of Ernst & Young is seen in Zurich, Switzerland November 13, 2020. REUTERS/Arnd Wiegmann/File Photo
Register now for FREE unlimited access to Reuters.com
NEW YORK, Sept 9 (Reuters Breakingviews) – It’s easy to say a company should break up, but hard to make it happen. That couldn’t be more true of the plan to dismantle Ernst & Young, whose partners will vote over the coming months on splitting the firm’s consulting business from its audit arm. Strategically it’s appealing. Logistically and mathematically, it’s a number-cruncher’s nightmare.
EY is carving itself up because regulators in the United Kingdom and elsewhere want it to, but also because it makes sense. Accounting firms often can’t audit companies which are also consulting clients, so being two separate firms, most likely with the consultancy as a public company, would let EY squeeze more milk from the cow. Chief Executive Carmine Di Sibio reckons that could create $10 billion of revenue on top of the $45 billion a year the group makes now.
The devil really is in the detail, though. Unlike a listed company, where shareholders might vote once to approve a breakup, EY must hold local polls in around 75 countries. Some require a simple majority, others need two-thirds’ backing. Some locations give each partner one vote; others divvy up power according to how much capital a person owns. And in some places, partners with certain accounting qualifications get a separate vote.
Register now for FREE unlimited access to Reuters.com
Valuation is no less troublesome. If the firm splits, audit partners would effectively trade their share in the consultancy for consultants’ share in the audit business. A slug of cash would go to audit partners to balance things out. But the valuation will rest on assumptions. Pricing a consultancy isn’t too hard: rival Accenture (ACN.F) trades at just under three times this year’s forecast revenue, according to Refinitiv. But none of the big U.S. accounting practices are publicly traded.
EY sold its original consultancy in 2000 to IT firm Capgemini (CAPP.PA) in return for stock. Partners then watched in agony as the buyer’s shares fell 95% in two years, and EY rebuilt its consultancy once the non-compete agreement lapsed. This time there’s no acquirer’s stock to worry about, but valuation still matters. The firm’s owners are also its employees, so a deal where one side does much better than the other is likely to lead to a disgruntled workforce. Auditors and consultants are trained to be critical of deals and valuations; selling them on this scheme will put EY through its paces.
Follow @johnsfoley on Twitter
CONTEXT NEWS
Ernst & Young will ask partners to vote on whether it should separate its audit and consulting businesses, it said on Sept. 8. The ballot, which will take place on a country-by-country basis, will start later in 2022 and the firm expects to finalize the decision in early 2023.
The split would involve partners in each business retaining stakes in their respective sides and would most likely involve cash paid to audit partners to adjust for the different values of the two units.
Register now for FREE unlimited access to Reuters.com
Editing by Antony Currie and Thomas Shum
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.