Aurelia Butler

TORONTO (Reuters) – Demand for pre-construction condominiums across Toronto has started to soften with rising interest rates, but market- watchers say developers are unlikely to cut prices with margins already under pressure, choosing to delay projects instead. Pre-construction condos are seen as attractive, particularly for investors, as their prices are generally expected to appreciate by the time they are completed.But developers have been facing challenges for months, with margins squeezed by rising costs after inflation hit a three-decade high of 6.8% in April. A strike by Ontario construction workers last month has compounded existing delays caused by a shortage of workers, just as demand softens.”Margins are incredibly tight,” said Jordon Scrinko, founder of pre-construction condominium brokerage Precondo. “So I don’t think you’re going to see pre-construction projects launch at lower prices than they are currently,” he said. Instead, developers will choose to delay releases of new units, he said.Runaway growth in home prices during the pandemic has become a hot-button issue in Canada. The surge in home prices has strained affordability in major cities, and Canadians are already among the most heavily indebted people in the world.The Bank of Canada’s 1.25 percentage points of interest rate increases since March have rapidly cooled the resale market, and economists expect further rate hikes could drive prices down by as much as 20% in some areas.Federal and provincial governments have also stepped in with measures to boost supply and discourage speculation. Canada’s Liberal-led government last month took aim at pre-construction investors, adding sales taxes to any profit made on units flipped before completion.There were nearly 7% fewer pre-construction units for sale across Toronto in March and April this year compared with a year earlier, according to Altus Group data. Inventories rose 14% from the prior two months, versus numbers that more than tripled last year.Meanwhile, pre-construction condo prices increased nearly 2% in April from February, when the broader market peaked, according to Altus. But shifting buyer sentiment and shrinking affordability are hitting housing demand.Construction costs have risen about 7% this year, and are likely to be up 10% by year-end from 2021, said Jim Ritchie, chief operating officer of Tridel, one of Canada’s biggest developers. “The economics have to work,” Ritchie said, adding that the company has some project launches planned for the second half of 2022. “If they don’t work, we’ll look at other strategies, and one of those could be delaying going to the marketplace.”Costs are rising so rapidly that many contractors are willing to commit to prices for only seven days, Adi Development Group’s chief executive officer, Tariq Adi, said. The company, in turn, has raised prices on new projects and, on one complicated development already under construction, went back to buyers asking for higher prices after costs jumped.Firm prices mean the premium for pre-construction condos over resale homes is now about 20%, from 10% historically, said Shaun Hildebrand, president of real-estate research firm Urbanation. While this means buyers can find better deals in resale homes, shrinking inventory as developers hold back is likely to keep a floor under prices, he said.Despite the slowdown, demand for pre-construction units is unlikely to wane significantly as buyers bet the current economic headwinds will have ebbed, and prices will rise, by completion, market-watchers said. “The pre-construction market is a ‘future’,” said Simon Mass, CEO of The Condo Store Realty. “The slower traction isn’t going to last long as the alternatives for investors that love the property markets is limited.” More

As the cost of living rises, securing a pay rise is likely to be the top item on your financial to-do list. So how can you maximise your chances of getting one? Money Clinic has joined forces with the FT’s Working It podcast this week as we return to one of our most popular episodes: “How to ask for a pay rise — and get one!”Back in November, podcast listener Max told presenters Claer Barrett and Isabel Berwick how he hoped to negotiate a raise with his current employer after being approached by headhunters offering more money elsewhere. In this special episode, Max tells us what happened next, and whether the experts’ advice paid off. Plus, Isabel explores what managers can do to help their teams asking for higher pay, especially if there is no budget for it. This episode will help you gather the tools and tips you need — and also tell you what not to do. If you would like to appear as a future guest on Money Clinic, please email the team via [email protected] or send Claer a DM on social media — she’s @Claerb on Twitter, Instagram and TikTok.

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Australia’s central bank has raised interest by the most since February 2000 as it adopts a more aggressive approach to curbing rampant inflation. The Reserve Bank of Australia’s decision to raise rates by 50 basis points marked the first time that the bank has introduced back-to-back rate rises since 2010, and was at the top end of economists’ forecasts. The central bank has been criticised in recent months for not acting sooner to damp the threat of inflation. But the RBA has now joined a wider global push to tighten monetary policy after stimulus measures were deployed during the coronavirus pandemic. The sharp rise in rates had a knock-on effect on markets, with Australia’s S&P/ASX 200 index closing down 1.5 per cent in the wake of the RBA’s hawkish move.Philip Lowe, governor of the RBA, said the action was needed to get inflation back towards target levels, with economists warning that the bank’s forecast of headline inflation rising to 5.9 per cent this year was conservative. “Inflation is expected to increase further but then decline back towards the 2-3 per cent range next year. Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago,” he said.Australia’s Treasurer Jim Chalmers said the interest rate rise would heap pressure on households struggling with higher energy and food costs as well as on the Labor government, which has to pay down debt of A$1tn (US$719bn) it inherited when it won the general election last month. “This inflation challenge will get harder before it gets easier,” he said.Inflation in Australia has been lower than in many other countries, such as neighbouring New Zealand, but the cost of petrol and fresh food has started to hit consumer confidence. Fast-food chain KFC said this week said that it would start using cabbage leaves in its sandwiches in the country after a shortage of lettuce sent the price of the leaf soaring.The food cost rise has been driven by flooding in agricultural regions, but Lowe said a tight labour market and global factors including the pandemic and the war in Ukraine had also contributed to inflation.New Zealand’s central bank has moved an ultra-hawkish stance to deal with its inflationary pressure, and economists said that the RBA has started to follow suit. The RBA highlighted a resilient economy and a strong labour market, with unemployment at the lowest levels for 50 years, as the causes underlying its decision to impose a steep rise.

“They have identified slower household consumption growth due to faster inflation and higher interest rates as the key risk to the outlook — faster rate rises add to this downside risk,” said Sean Langcake, an economist with BIS Oxford Economics.Chalmers said that the rate rise would add about A$87 a month to the cost of the average mortgage and A$157 for newer home loans.The government would look to introduce new cost of living measures in its October budget, he added, with election pledges on medicines, wages and childcare due to be delivered. The administration is also picking through public spending “line by line” for savings after inheriting a budget “heaving with Liberal debt”, according to Chalmers. “Our predecessors treated the budget as a giant political slush fund,” he said. More

It requires at least a generation of explosive growth of the sort mustered by Japan, South Korea and China to eradicate extreme poverty. More recently, countries such as Vietnam and Bangladesh have reached economic escape velocity.A sustained period of growth does not guarantee long-term success, as recent conflict in Ethiopia demonstrates. Nor, as China shows, does attainment of a certain standard of living necessarily lead to liberal democracy. But fast growth, reasonably equitably shared, remains a prerequisite for a better life.Why do some countries remain poor while others stumble on a path to growth and development? This has been the subject of much academic study and many popular books. Jeffrey Sachs’ The End of Poverty emphasises the role of aid to deliver a “big push”, while Why Nations Fail by Daron Acemoglu and James Robinson sees a country’s institutions as a critical determinant of success or failure. Stefan Dercon, a Belgian-British economist at Oxford university and an international development practitioner, is the latest to try to crack the mystery. The result is an important book, Gambling on Development, both scholarly and grounded in experience. It may come as close as any to answering this critical question.

Its thesis is brutally simple. “The defining feature of a development bargain is a commitment by those with the power to shape politics, the economy and society, to striving for growth and development,” writes Dercon.Growth happens, in other words, when elites try to bring it about. To do so, they must gamble on increasing the size of the economic pie rather than carving up the one that already exists. This is risky. Their gamble may fail and they may be blamed. Or it may succeed and they may be pushed from power by new entrants.The idea of an “elite bargain” may seem blindingly obvious. It is not. Dercon’s insight came after meetings in 2013 when he was chief economist of the UK’s now defunct Department for International Development, first with officials from the Democratic Republic of Congo and then with those from Ethiopia. He came away thinking that, for all their fine words, DRC officials were not serious about development, whereas those from Ethiopia, though they spoke in more unorthodox terms, meant what they said. The facts bore this out. In the 15 years to 2019, resource-poor Ethiopia grew on average at 7 per cent annually per capita, three times faster than the DRC. In DRC, it suited a small elite to capture the nation’s mining resources and sell them off to foreign conglomerates, leaving most Congolese to fend for themselves. Too many countries, in Africa and elsewhere, fall into this category. Dercon provides a range of case studies of success, failure and muddling in between. There are important implications of his thesis, which is not prescriptive. There is no shopping list of “correct” policies. You don’t need to be an ideal democracy with a perfect set of economic policies to roll the development dice.

State planning may work, particularly if, like China, the state has a history of competence. But so may a laissez-faire approach if the state provides certain public goods. In Bangladesh, Dercon writes, progress had less to do with “a grand design” and more to do with policymakers not doing the wrong thing. Some successful governments may marshal domestic savings, others foreign investment. Some may prioritise exports, others spending on schools and hospitals. Dercon quotes a study by Michael Spence, a Nobel laureate in economics, who concluded that there was no recipe for development, even if we know some of the ingredients. Finding the right formula involves trial and error. Deng Xiaoping, who unleashed China’s potential after the chaos of the Mao era, talked of crossing the river by feeling the stones. But you need to want to get to the other side. Dercon’s theory offers escape from determinism. History counts. Many countries were ruthlessly exploited through slavery and colonialism. But history — and circumstance — can be overcome. Bangladesh has overcome a vicious war of independence, political assassinations and widespread poverty to attain more than 20 years of growth. That has transformed opportunities for millions of people, particularly women, and brought the country to the brink of middle-income status. Dercon’s view has implications for international aid, which, he argues, is never a determining factor. It can help countries, but only if they have gambled on development themselves. If not, then aid is at best a sticking plaster and at worst an enabler of a derelict elite. But if a country is on the right road, aid can increase the upside and reduce the risk of failure.There are gaps in Dercon’s argument. Elites do wield outsized power, especially in the absence of democratic accountability, but there is little room in the book for ordinary people’s influence over events, if only through the actions of civil society. Nor, for many readers’ taste, will there be sufficient acknowledgment of a colonial history that left countries, particularly in Africa, ransacked, traumatised and dismembered. Yet it is precisely the urgent simplicity of Gambling on Development that is its strength. Dercon’s message is ultimately an empowering one. “Magic and miracles happen,” he writes. But those in charge have got to want it. Gambling on Development: Why Some Countries Win and Others Lose by Stefan Dercon, Hurst £25, 360 pagesDavid Pilling is the FT’s Africa editorJoin our online book group on Facebook at FT Books Café More

The US stock market briefly entered bear territory last month, defined as a fall of 20 per cent or more. Investors worry that inflation, racing ahead on both sides of the Atlantic, will get worse. Central banks have lost their magic and are struggling to catch up with reality, prompting fears that the cure for inflation will be worse than the affliction. As investors contemplate recession, the US market’s decline has been led by the great growth stocks and success stories of the past decade. The Nasdaq technology index, from which the FT fund exited after a great run, is now well into bear market territory with losses of more than a quarter. The broader indices, with old economy stocks including oil and gas, banking and some commodities, have fallen less. Some of these sectors can do well even in these disrupted conditions and provide a brake on the general decline. Two weeks ago we saw a rally.People are beginning to doubt the wisdom of the central bankers who have made the long bull market possible with their accommodating ways. Why didn’t the governors of the US Federal Reserve and the European Central Bank grasp that printing too much money usually leads to too much inflation?US president Joe Biden met with Fed chair Jay Powell last week to remind him that the prime task of the Fed should be to do what it takes to get on top of inflation. It is high and rising prices are hurting the president and his party in the polls as Americans struggle with soaring rent, food and energy bills.In the regulated world of modern investment funds, managers have to watch out as their fund values fall; they need to keep their funds with the minimum investment levels specified to retain their ratings as growth or balanced portfolios. They may try to switch into more defensive assets, but need to keep enough share risk to justify the fund description. This makes sense on the basis that bear phases are usually limited in time and magnitude, and that over most longer periods people should make money out of sensibly chosen riskier assets. So we need to explore what might change the downward trend of these gloomy markets. Can the recent rally be sustained?Whenever central banks threaten further rises in interest rates, it is difficult for markets to rise. Bonds fall because higher interest rates need lower bond prices. Many shares fall because companies face higher interest charges on their borrowings. This erodes profits, and may curb the demand for their goods and services as higher mortgage and credit costs squeeze family incomes. For as long as inflation remains on the rise or persistently high, it is likely the central banks will stick with their recently acquired hawkishness on rates, regretful that they did not do more last year to arrest growing inflation.That is why I kept the fund with substantial cash at around 25 per cent and ensured the bond section of the portfolio was in short dated and index linked paper. I have recently switched some of the money out of short dated US Treasury inflation linked into short dated corporate debt as the inflation story is now well known. The corporate bonds offer a bit more income now that rates have risen somewhat from the lows. The position in Europe is different. Economies are closer to recession on this side of the Atlantic. Germany had a down quarter at the end of last year. While the US is still growing quickly, the European economies are stalling. The Ukraine war looms larger, the stimulus was less substantial and the growth rate slower anyway. The Bank of England was early in stopping money creation and bond buying, which has decelerated the money supply.The US has great strengths against the present poor outlook, with self sufficiency in gas, a lot of oil and plenty of homegrown grains. Europe in contrast has to import more at sky high and erratic world prices. Large increases in the cost of basics act like a big tax rise, hitting people and companies. The money they have to pay for energy and food means they have less to spend on other things. Quite a lot of the energy cost is tax, given away to the governments of the producing countries and so lost for domestic spending and output. One of the oddities is the ECB has still not stopped printing more euros even though six member states in the euro have inflation rates above 10 per cent and the average is now 8.1 per cent.I am watching to see when the forces creating a slowdown are sufficient to ease price pressures. When do the central banks and governments start to worry more about recession and less about inflation? It seems likely we will be through the rate rising cycle more quickly than gloomy markets currently assume, as the forces of slowdown are very considerable. We may now have seen growth in US prices and wages peak, which would be good news. If so, that will limit how high interest rates have to go. The Europeans may not be too hawkish with the rate rises being mentioned, as they have left it late to end their money creation and now have serious problems with output as well as prices to balance.It is, however, still quite early in the shift from fighting inflation to offsetting recession. Labour markets are still stretched, capacity is still too low in many important areas and central banks are still smarting from their big mistakes last year in forecasting low inflation. It will take further cuts in demand to cool the prices of everything from bread to circuses. We are living through a bigger retreat from globalisation, which lowers efficiencies and raises prices. There are still people reluctant to return to the workforce keeping labour markets tight.The biggest change of all is the ending of extra dollar printing in the US, the termination of sterling creation by the BoE and the likely cessation of more euro printing by the ECB. This removes crucial supportive buying from the bond markets at a time when governments are still needing to sell plenty of debt. Only Japan keeps pressing the keys for more yen as their inflation defies the winds that fan the price rises elsewhere. Markets are still adjusting to this bad news. They will return to winning ways when we can see an eventual peak to the rate rises and a clearer need for governments to make recession-fighting the priority over inflation. We may be getting closer to better news on falling inflation, with early signs of cooling in housing markets and even signs that wage increases are peaking. When the authorities see shortages easing, and margins being squeezed to keep prices down, markets will start to look beyond the bad news.Sir John Redwood is chief global strategist for Charles Stanley. The FT Fund is a dummy portfolio intended to demonstrate how investors can use a wide range of ETFs to gain exposure to global stock markets while keeping down the costs of investing. [email protected]

The Redwood Fund, June 6 2022SymbolName% portfolioBGR21L8Lyxor Core MSCI Japan (DR) UCITS ETF Dly Hgd GBP A2.84%BM90KT3L&G Hydrogen Economy UCITS ETF1.80%cashCash Account [GBP]25.05%EMIM. LiShares Core MSCI EM IMI UCITS ETF USD Acc1.87%GILI. LLyxor FTSE Actuaries UK Gilts Inflation Linked (DR) UCITS ETF D4.80%INRG. LiShares Global Clean Energy1.89%ISPY. LLegal & General Cyber Security UCITS ETF1.88%IWDG. LiShares Core MSCI World UCITS ETF GBP Hgd (Dist)21.07%LP68161809L&G All Stocks Index-Linked Gilt Index I Acc3.65%ROBG. LLegal & General ROBO GI Robotics and Automation UCITS ETF1.84%SDIG. LiShares $ Short Duration Corporate Bond (USD) ETF9.74%SEMH. LSPDR BofA ML 0-5 Yr EM $ Govt Bd UCITS ETF2.05%TI5G. LiShares $ TIPS 0-5 UCITS ETF GBP Hedged5.63%VMID. LVanguard FTSE 250 UCITS ETF GBP Dist4.27%XDPGD. LXTRACKERS S&P 500 UCITS ETF5.71%XKS2. LX-trackers MSCI Korea ETF1.61%XMTW. LX-trackers MSCI Taiwan ETF4.30%Total 100.00%Source: Charles Stanley More

The writer is chief executive of AmundiDebate around European strategic autonomy is normally framed around geopolitics and security issues, and driven by politics only. That is odd, since it is more of an economic challenge, and a big one at that. The Covid-19 pandemic, the climate emergency and the war in Ukraine remind us of the consequences of globalisation and dependencies. The EU, as the most open economy in the world, faces big hurdles in the supply of critical goods and is paying the price of lack of self-sufficiency in many sectors. Six sectors stand out as vital for EU strategic autonomy: agriculture, energy, healthcare, materials, technology and defence.After the last two years, Europeans agree that economic autonomy is essential, as is a green energy transition. Yet the question — on which there is little agreement – is how can we get there by the end of the decade?Unless economic reality becomes the bedrock for this political goal of European autonomy — and triggers a new investment momentum in Europe – it will not happen.Strategic autonomy does not mean isolation but lower external dependency with selective reshoring and diversification of supply. It would be economically damaging to do away with the benefits of globalisation, but equally short-sighted to underestimate the costs of Europe’s dependencies. As investors, there is common ground in the pursuit of economic resilience, a green transition and sustainable investing. Europe’s transition to a low-carbon economy can only be achieved with lower dependencies on some critical sectors such as micro-electronics, which demands semiconductor production to be built in Europe, to avoid supply chain disruption. To become reality, this calls for hundreds of billions of euros of capital expenditure, substantial shareholder capital and positive expected returns on investments. The same logic can be applied to energy, agriculture, technology, healthcare or defence.This begs the question of how we can get there — and quickly.Given the scale of the investment needed, public funds alone will not be enough. But if sufficient private capital can be harnessed, the goal becomes achievable. To do that, the current EU regulatory framework must evolve and better incentivise long-term investments to support European strategic ecosystems.That means a fundamental overhaul of the incentive structure of private investment in key sectors. Public funding guarantees or fiscal incentives, consistent with EU policies, could limit uncertainty around the large investments needed, new technologies and the industrial challenges from energy transition. Long-term shareholders in these sectors could be granted additional voting rights or enhanced dividends net of taxes. This would reduce the pressure of short-termism on companies’ boards.Today’s EU regulatory framework also favours investment into public debt over corporate debt or equity. It should be changed to encourage institutional and retail investors to support European champions. Capital requirement directives for banks and solvency rules for insurance companies can be better aligned to the objectives described above. The complexity of Mifid regulation for distributors of investment products to retail investors must be tackled. Europe is not short of capital and ideas, but struggles to close the investment gap in strategic sectors.Asset managers have an important role to play as the natural link between long-term capital needs and savings as well as educating investors on the benefits of investing in the energy transition and in strategic sectors.How we, asset managers, act with our investee companies matters too. Voting rights and engagement with managements bring significant power of action. We have a duty to use it judiciously and with a long-term mindset. That means working with investee companies to support, induce and accelerate a just and socially acceptable transition to a low-carbon economy. That includes, of course, companies in sectors such as oil and gas because they are the first ones needing investment to adapt and drastically transform their business models. If they do not swiftly invest their capex, industrial intelligence and experience in producing renewable energies at scale, who will?To enable investors and savers to support a fair green transition and actively contribute to making Europe’s strategic autonomy a reality, asset managers have their work cut out. Getting them fully on board will unleash the resources and the scale to make this a reality. More

TOKYO (Reuters) – Japan’s household spending fell faster than expected in April as the yen’s sharp decline and surging commodity prices pushed up retail costs, hitting consumer confidence and heightening pressures on the battered economy.Spending improved from the previous month as households showed increasing appetite for services such as eating out, but the month-on-month rise was smaller than expected, suggesting the drag from the pandemic remained.In a sign of trouble for the economy, real wages shrank at the fastest pace in four months in April as prices posted their biggest jump in more than seven years, weighing on household purchasing power.Household spending decreased 1.7% in April from a year earlier, government data showed, faster than the market forecast for a 0.8% decline in a Reuters poll, dragged down by lower spending on cars and vegetables.The month-on-month figures showed a 1.0% increase, also weaker than a forecast 1.3% rise.”Higher energy and food prices are having a big impact and suppressing consumption,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “While a spending recovery remains intact, its pace is slowing.”The data raises some concerns for policymakers worried about the growing hit households are taking from rising prices for daily essentials and a weakening yen, which is pushing up import costs and making consumers hesitant to spend.Households were becoming more accepting of price rises, Bank of Japan Governor Haruhiko Kuroda said on Monday, adding that a weak yen in general was likely to have a positive impact on the economy as long as its moves were not extreme.The yen hit a fresh two-decade low against the U.S. dollar early on Tuesday, last trading around 132.20 yen per dollar.A government official downplayed the impact of price rises on the cutback in food spending, saying it had already been on a declining trend from the spring of last year, a reflection of shrinking demand for eating at home.But the outlook for consumer sentiment was extremely worrying, the official said, adding that it should be watched.Government data on Tuesday also showed inflation-adjusted real wages shrank 1.2% in April, dropping at their fastest pace in four months as a 3.0% jump in consumer prices outpaced a gain in nominal wages.”The problem is structural. It feels like the situation where wages and prices are not rising in line with each other can’t be left behind,” said Minami.Japan’s economy is expected to rebound in the current quarter following a contraction in January-March, though it faces increased pressures from high raw material and energy prices as well as the weak yen. More