Property prices – where will they stop?


The National House Building Council announced that the number of new build houses built in the UK between from the month of March to May rose by 4% year on year (2013-2014). Within these three months, there was a total of 37,975 new houses registered. If we annualise this i.e, multiply by 4 to give us an estimate for the year, just over 150,000 homes are being built annually. This is just over half the amount of houses the Future Homes Commission recommended the UK would need to build each year to keep up with household and population growth, not to mention the vast interest from foreign investors in the UK’s thriving capital, London. The current demand is estimated to be almost double the supply, there is no doubt prices will continue to rise for the foreseeable future. The Bank of England announced a cap on mortgage lending last week in an attempt to normalise the housing market. The Financial Policy Committee (FPC) have announced that no more than 15% of any financial institutions (bank/building society) new house purchase lending can be at a Loan to Income (LTI) of 4.5 or more.

Loan to Income example
John earns 55k and Tina earns 45k. Together they want to buy a house. A loan to income of 4.5 essentially means they borrowed 4.5*(45k + 55k) = 4.5*(100k) = 450,000

Institutions have been lending at higher LTI ratios primarily due to a combination of slow living wage growth in the UK and an increase in property prices due to demand outweighing supply and overseas cash buyers.

In my opinion, I don’t believe this will solve the problem. If anything, it will price out more domestic first time buyers out of the market with more power given to foreign investors to continue to drive up prices and make becoming a homeowner an ‘elite’ privilege in the nearer future.



Nigeria – GDP or Greed?


Before I go into my post I’d like to wish the safe return of the 234 Nigerian schoolgirls kidnapped by Boko Haram – this devastating act doesn’t in my opinion seem to be getting the focus that it should be, however God is in control. #bringbackourgirls
Nigeria replaced South Africa as the Largest Economy in Africa, after the government revamped the way they calculated the GDP of the country. the figure now stands at $510bn, nearly double the $260bn amount provided in 2012. This is down to the recognition of New industries in the rebased calculations including: food, beverages and tobacco, chemical products, pharmaceutical products, arts and entertainment. Nollywood, the Nigerian movie industry produces more films a year than any other country except India. There are up to 120 million mobile phone subscribers  in a country of around 170m people, and dozens of providers which is remarkable considering Only 20 years ago, Nigeria had one telecoms operator and around 300,000 telephone lines. 
This apparent diversification of the Nigerian economy has eased the pressure on the volatile Oil and Gas industry to perform as it has been doing for a long time now. Before the rebasing, the share of crude oil and natural gas to the nominal GDP was 40.86 percent in 2011 – this figure is now 14.4% for 2013. Their investment uncertainties surrounding the industry down to the impending regulatory changes (the Petroleum Industry Bill) and growing issues around oil theft which have delayed exploration projects which were to be implemented to assist the country in increasing Oil production.
Ratings agency Moody’s published a statement on Nigeria’s rebased GDP of $510 billion, which it estimates would surge to $4.5 trillion by 2050 – however in my opinion this still papers over the cracks that have hindered the country for so long and will continue to hinder the country if nothing is done to stop it. The economy is booming with billions of dollars worth of investment flowing in to the country annually and year on year economic growth has nearly doubled – however there is a sense that the bottom line do not seem to reap the rewards of their labour. Corruption and financial mismanagement have kept the benefits from trickling down. Why is it that although the country now has the largest economy in Africa they are number 3 on the World Bank Poverty Index? Why did World Bank Country Director, Marie-Francoise Marie-Nelly claim last year that 100 Million Nigerians were living in destitution? Why is my cousin constantly having to save his career mode on FIFA after every game because he’s scared that NEPA will strike and electricity will cut out? Why is the country’s infrastructure still lacking? What steps are being taken to eradicate the evolving threat posed by Boko Haram? These are just a few of many questions that need answering…
The general consensus is that the current administration of President Goodluck Jonathan has not done enough to improve the welfare of Nigerians since taking over from the late Umaru Yar’Adua in 2010. Earlier this year Mr. Jonathan lost public and investor confidence in the country by firing the respected head of the central bank, Lamido Sanusi, the first time this has happened in the country’s history (Check out the full story here). This reinforced suspicions that the lost money to the account of $20bn which could have been spent improving the economy further was shared amongst politicians.  It seems like the country has the classic problem of inequality – the rich are getting richer and the poor are getting poorer. More than 60% of Nigerians live of $1 a day – that’s crazy. 
Something needs to be done and fast if the country wants to realise the potential it has. 


The economic recovery – Return of the pound?


The economic outlook of the UK has had an impact on the Foreign Exchange markets. The pound sterling is strengthening against many currencies in both the developed and emerging markets however in this blog I’m going to focus on the relationship between the pound and the dollar and the positives/negative impacts as a result of this. First of all what does it mean for the pound to strengthen against the dollar? Basically you get more dollars for every pound when you go to exchange it at your local bureau. What has caused this in the markets? Well it is a combination of the following – the outlook on monetary policy and economic recovery.

Monetary policy in a nutshell is the setting of interest rates. The Bank of England Base Rate has been set at a record low 0.5% for 5 years now primarily down to the recession that had plagued the country for years. This was to enable businesses (and banks) to borrow from banks to fund operations and create new employment opportunities to compensate for all the jobs lost during the difficult period post 2008. In 2009 GBPUSD was trading at 1.3505, a 23 year low! The Bank of England announced earlier this year that they expect the Base Rate to increase by 2nd Quarter 2015. Due to the positive correlation between interest rates and foreign exchange rates, this led to the pound strengthening against major FX currencies and emerging market currencies. In fact $11bn was removed from emerging market funds by the end of February primarily down to the positive outlook investors had on developed markets (source:Bloomberg)

The economic recovery has also played a part in strengthening the pound. UK unemployment fell by 63,000 to 2.33 million in the three months to January 2014, according to the Office of National Statistics. Lower unemployment will inevitably lead to an increase in a country’s GDP which symbolises growth and is one of the many signs of recovery. The budget especially the reforms relating to ISA’s and pensions were seen by the public as great news (more details check here)

The strengthening of the pound great news for people like me who want to get as many dollars as possible to use to spray at Nigerian weddings this summer but is bad for British investors in UK blue chip companies, as many of these firms report their profits and deliver dividend payouts in dollars. Capita Asset Services released a report recently arguing that the pound’s strength will wipe £3.5bn off the value of dollar denominated dividends of UK based firms.

With the weaker than expected US first quarter GDP growth (0.1% Actual v 1.1% Expected) and the manufacturing sector purchasing managers’ index reaching five-year highs this week,this will provide the impetus for investors to capitalise and invest in the Pound, before it’s too late and there is a ‘correction’ in the market.

GBPUSD is currently trading around 1.68-1.69 (i.e. 1 Pound = 1.6878 Dollars) – which is a 5 year high for the currency pair. Who knows the days where you’d get a 2 dollars for every pound may soon be back on the horizon – only time will tell….

The economic recovery – UK employment


On Wednesday the Office of National Statistics released information which can be seen as an indicator to how the British economy is faring. The unemployment rate of the economically active population is now 6.9%, the lowest since 2009 and the number of people in work is 30.39 million. The number of people out of work fell by 77,000 to 2.24 million in the three months to February.  The jobless figure for 16 to 24-year-olds fell by 38,000 in the three months to February to 881,000, the lowest for five years (source BBC business).

What does this mean in reality? In a perfect scenario everyone would be employed, earning money living happily ever after – however their are a finite number of resources and jobs available. There has been a mindset shift amongst individuals where they are now content with doing a diverse range of jobs than just their preferred role which was over saturated with respect to the number of applications received for each individual job opening. A reduction in the number of unemployed individuals is definitely positive for many reasons. Being able to provide for ones self provides a psychological sense of independence, which should* lead to improved morale and long term productivity. Productivity is an interesting one however because it’s not the easiest variable to measure – a traders measure of productivity would be completely different to a cleaners appraisal.

A reduction on the number of unemployed individuals in the UK also has an impact on the amount of benefits claimants. The claimant count – the number of people claiming Jobseeker’s Allowance – fell by 30,400 to 1.14 million in March. This is positive as benefits are essentially paid by government through the income generated primarily through taxes and spending cuts so the less benefits paid by the government, the more money saved which could be to reform the economy.

Also the Gross Domestic Product / Gross Domestic Income of the UK will increase. The higher the GDP, the healthier the country is economically, so this is definitely a positive sign for Britain. Youth unemployment however is still an issue. Although the amount of 16-24 year olds without work is decreasing, the youth unemployment is worryingly high at nearly 20%. Curbing this is a priority for Labour Government if they win the next general elections – under their Jobs Guarantee plan, 18 to 24-year-olds out of work for a year will be offered a taxpayer-funded job for six months – with those who refuse losing benefits.

In conclusion there is still a lot of work globally that needs to be done to fully recover from the aftermath of the financial crisis but the signs definitely good for the UK, considering parts of Spain still boast of unemployment rates of around 26%. Continued and stable progression should be the aim, with the low interest rates remaining low for the considerable future, companies can afford to borrow more to expand their operations and hire even more people who are out of work.

Make sure you follow @capitalmoments big things coming very soon.

*This is my assumption and cannot be taken as a scientifically proven theory – it makes sense though right!