21 Jun 2019

Irish Housebuilders / REITs / Banks: Planning permissions stumble in Q119

Planning permissions data released by Ireland’s CSO show that 7,493 dwellings were approved in Q119. While this was a sequential improvement on the Q418 outturn of 6,682 units, it was -3.5% y/y, representing a second successive annual decline for the index.  


On a 4qms basis (to account for the ‘lumpiness’ of the data), permissions reached a post-crisis high of 29,295 in Q318 but have since moderated to 28,970 units. To put that in context, average annual permissions since records began in 1975 stands at 37,421 dwellings.


The CSO data show that apartments accounted for 35% of permissions, marking the third successive quarter in which apartments have made up at least a third of permissions. This compares to a post-crisis average (taking Q114 as the start of the post-crisis period, given that Ireland exited the EU-IMF programme in December 2013) of 23%, with the recovery in prices in recent years having made apartment developments more viable.


Some of the recent moderation in permissions likely reflects the front-loading of applications by developers after the introduction of a ‘fast track’ planning regime for schemes of 100 or more units by the government in mid-2017. In 2018, the first full year of operation of the regime, planning permissions rose 41% y/y. We recently pared back our housing completions forecast for 2019 (from 23,000 to 22,000) and 2020 (from 28,500 to 27,000) due to a slight undershoot in new build activity. The 4qms trend for permissions cited above chimes with our refreshed view on housing output, but it also has negative read-through for the housing supply crisis in Ireland, which has implications for the banks, builders and REITs.


Irish Economy: IDA H1 results show strong growth

IDA Ireland, the State agency tasked with attracting foreign direct investment (FDI) to Ireland, yesterday unveiled strong H119 results.


In the opening six months of the year the agency secured 13,500 new FDI jobs from 140 distinct projects. The job count is +19% from a year ago while the number of projects is effectively flat (H118: 139). This is a very impressive performance when set against the backdrop of a slowing world economy.


In relation to Brexit, the agency disclosed that 80 relocation projects involving more than 5,300 jobs have flowed to Ireland as a result of the UK’s vote to leave the EU.


The agency estimates that eight ‘spin off’ jobs are created for every 10 FDI jobs in Ireland, so this performance should have benefits for a range of sectors including (but not limited to), real estate, banking, consumer staples and consumer discretionary.


Irish Economy: NTMA sell €500m worth of T-bills

Ireland’s NTMA yesterday raised €500m from the sale of 12 month T-bills.


Total bids received amounted to €1.834bn, which was 3.67x the amount on offer. Helped by this demand, the bills were sold at a yield of -47bps, which is in-line with the “-50bps area” we had been expecting.


While €500m of issuance is a rounding error when set against the context of €206.2bn of general government gross debt, few would quibble with being able to access funding at a negative yield.


Boris close to victory 

Boris Johnson (160) extended his comfortable lead over his rivals, while Jeremy Hunt (77) managed to scrape two more votes than Michael Gove (75). In the next stage of the contest, Mr Johnson and Mr Hunt will participate in hustings with the party’s membership base over the coming weeks before being put to a postal ballot. It is unclear when the result will be known, but the party has indicated that it is aiming for the week commencing 22 July so that a new leader – and therefore new Prime Minister – can be installed before the House of Commons rises for its summer recess on 25 July. That’s a very slim three day window for the new UK PM to call a general election or for the opposition to table a vote of no confidence. Johnson is the bookies hot favourite, a quick glance at the odds puts him close to a 90% chance of getting the top job.


No change BoE 

As expected, the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain Bank rate at 0.75% at its June meeting. All nine members also voted to maintain the stock of gilts at £435bn and corporate bonds at £10bn. The MPC acknowledged in the minutes of their meeting that the perceived likelihood of a no-deal Brexit had risen, as reflected in the marked flattening in the market-implied path for Bank rate as well as a sharp depreciation in sterling. Taken at face value, the content of the minutes offered up nothing by the way of surprises. Rather, what was more intriguing was what was absent from them.


Policy dilemma

Though policymakers still judged an ongoing tightening of monetary policy was needed, there was little evidence of any debate over the timing and extent this would need to take. Likewise there appeared to be no consideration over whether policy easing should be on the table, as the Federal Reserve and ECB have recently alluded to. This, we believe, is a consequence of the policy dilemma facing the MPC, who need to weigh up its assessment of limited domestic spare capacity against the downside risks presented by both Brexit and the external environment. Given that a resolution to these sources of uncertainty does not seem forthcoming, we continue to suspect that the MPC will hold off from raising Bank rate until November 2020.


UK retail sales (May) 

Figures from the ONS show that retail sales fell 0.5% on the month in May (consensus -0.5%, Investec -0.8%) following a slightly downward revised 0.1% dip in April. Excluding petrol and diesel sales, volumes declined by a more modest 0.3%, matching the pace of April’s revised fall. Detail of the release showed that clothing and footwear sales had seen the sharpest month-on-month fall in nearly four years. Based on anecdotal feedback from retailers, the ONS partly attributed this to the poor weather dissuading shoppers from updating their summer wardrobes.


Economic Releases

09.00 EZ Manufacturing PMI
09.00 EZ Markit Composite PMI
13.30 EZ MPC member Tenreyro speaks
14.45 US Manufacturing PMI
14.45 US Markit Composite PMI
15.00 US Existing Home Sales
17.00 US FOMC member Brainard speaks
17.00 US FOMC member Mester speaks