12 Nov 2018
New home completions continue to grow
The latest New Dwelling Completions release from Ireland's CSO shows that 4,673 units were completed in Q318, representing y/y growth of 23.4% (growth was a more modest 5.7% on a q/q basis).
In the first three quarters of the year new home completions were 28% higher than the same period of last year. Completions (on a 4-qtr moving sum basis) troughed at just 4,526 units in Q313, but output has increased almost four-fold since then to 17,161 units in the 12 months to Q318. While this ongoing increase is welcome, it’s important to note that the country is not yet close to building enough homes to meet demand – new household formations are running at between 30,000 and 50,000 per annum (depending on the assumptions used) and the population is expected to grow by between 18% and 41% by 2051.
The segment with the largest growth in Q3 (on a y/y basis) was housing schemes, where output grew by 41%, indicating that the industry is maintaining strong momentum and not yet showing the signs of any capacity constraints. Output of one-off houses expanded by 7% while apartment completions were marginally lower than in Q317. Indeed, 1,624 new apartments were constructed in the first three quarters of 2018 – an increase of just 23 units on the same period of last year, with this meagre increase a function of the high costs of delivery and the significant capital that is required to build apartment schemes.
Hibernia REIT: Acquisitions transform potential of Gateway site
Hibernia REIT has announced the acquisition of 98.3 acres of land adjacent to its existing holdings at Gateway, Newlands Cross in west Dublin. 92.5 acres is being acquired from the Irish Rugby Football Union for €27m (plus an additional payment should the land be re-zoned within the next ten years) and a smaller plot of 5.8 acres is being acquired from a third party for €1.7m. These acquisitions will increase Hibernia’s holdings at the location from 45.4 to 143.7 acres.
These acquisitions will increase the potential opportunities for Hibernia at the enlarged site although, given that the acquired land (and two-thirds of its existing holdings) is zoned for agricultural use under South Dublin County Council’s Development Plan (2016-2022), it will be some time before these opportunities come to fruition. The site is bounded to the north by the N7 (the primary route to the south-west of the country out of Dublin) and close to the orbital M50 motorway and the Luas, the city’s light-rail network.
UK this week:
The past few weeks has largely seen Brexit news-flow move into ‘net positive’ territory. That all changed on Friday and over the weekend when pro-European junior transport minister, Jo Johnson resigned along with the threat of several other ministerial resignations. With respect to the two sides reaching a deal, latest reports coming from The Times suggest that the UK cabinet could meet as early as today, with PM May addressing the Commons on Wednesday. If so, this could pave the way towards a special EU Summit scheduled between 23-25 November. This would allow the passage of legislation through Westminster to take place before the end of the year. In terms of data, the UK sees a busy few days.
We expect Tuesday’s unemployment figures to show a small increase to 4.1% (3m to September). But we see this as a blip and more importantly the BoE is likely to as well. On pay, we are forecasting the headline earnings series to strengthen to 3.1% (3m yoy), from 2.7%, and for the ex-bonus figures to remain at 3.1%. Anecdotal corporate stories revealing higher wage rates are likely to reinforce, not dilute, the Bank’s intentions to raise interest rates again. We expect a small rise in CPI inflation in October (Wednesday) to 2.5% and for retail sales to have bounced back modestly by 0.3% in October from September’s 0.8% decline.
Europe this week
In the Euro area, Italy has until Tuesday to re-submit its budget, following its rejection by the European Commission. With few signs of the League/5 Star administration backing down, there seems a good chance that Italy is placed into the EU’s Excessive Deficit Procedure (EDP). We note though that of the 28 EU nations, only two (Sweden and Estonia) have avoided the EDP. None has (yet) been subject to sanctions (i.e. fines). The indicator calendar is relatively light in the zone next week, but ECB President Mario Draghi is due to address a banking congress in Frankfurt on Friday.
US & China this week
In the US, Thursday is the key day – retail sales, the Philadelphia Fed index and the Empire State survey are all due. Chinese monthly activity indicators are set for Wednesday morning. Signs of further softness in industrial production and fixed investment would raise speculation that Beijing is about to announce further stimulus measures.
Brexit (lack of) progress
Reports of negotiations from Brussels suggest a lack of agreement between the EU and the UK. The main issue seems to be (still) Northern Ireland and specifically who can adjudge that the UK can leave the Temporary Customs Union, which has been proposed to avoid a hard border with the Republic. Lack of an accord before the end of the week would appear to end prospects of a special Summit towards the end of the month to agree an overall deal. Things have not been going well at home either.
Following junior Transport Minister Jo Johnson’s resignation on Friday, several other pro-EU ministers are alleged to have threatened to resign. Similar threats remain in place from hard-line Brexiteers. Hence not only does it look as if an accord between the UK and the EU is unlikely this month, Theresa May’s battle to pass a deal through parliament when a deal is struck, looks as tough a challenge as ever. Given this background, it is not surprising that sterling is weaker this morning. The pound is currently trading at $1.2875 and 87.6p.