Emerging market property prices 16 pct over 2007 - BIS

       Residential property prices in advanced economies have recovered the pummeling they took in the Global Financial Crises (GFC) while property prices in emerging market economies are 16 percent above the levels seen before 2008, the Bank for International Settlements (BIS) said.
       Overall, global residential property prices - adjusted for inflation and based on national averages - rose by 2 percent from the end of 2016 to end-2017 to be 7 percent over the the level achieved before the GFC, BIS said in its latest, abbreviated quarterly review.
       In advanced economies property in 2017 prices grew 3 percent in real terms, with the rise particularly marked in Canada, Germany, Ireland and Spain while they fell slightly in Italy.
       In emerging markets property prices only rose 1 percent in real terms last year, and decelerated significantly in China and India while they fell markedly in Brazil and Russia.
       But taking a longer-term perspective, BIS said property prices had continued to recover slowly after the global financial crises and in advanced economies they had risen continuously since 2012.
       In some countries real prices are still significantly below 2007 levels, including those in the euro area, the United Kingdom and the United States.
       Mainly due to a sharp expansion in the early 2010s, real residential property prices in emerging economies are 16 percent up from 2007, with prices almost doubling in India, close to 50 percent higher in Brazil and above pre-crises levels in China, Mexico and Turkey.
       But prices in Russia have fallen by more than 50 percent compared with 2007 and are below pre-crises levels in Indonesia and South Africa.
       During the GFC policy makers discovered a serious lack of timely data on the build-up of risk in the financial sector and thus the ability to understand and prevent financial crises.
      The Group of 20 leading economies launched a major initiative to erase this glaring gap in the understanding of how the financial sector affects the real economy, including its cross-border linkages, the role of complex off-balance sheet entities along with its exposure to real estate.
       Since 2015 BIS has been publishing residential and commercial property prices for 60 countries to deepen the understanding of household debt as a potential source of vulnerability that can lead to banking crises.
      The June issue of BIS' respected quarterly review only includes information linked to its vast array of statistics of international banking and financial markets, with commentary and other articles to be included in its Annual Economic Report that will be published on June 24.
       In addition to its short article on global property prices, the review also includes a feature on the change in the size and structure of the global credit default swap market over the last decade.
       The feature shows how outstanding amounts have fallen as central clearing has risen and thus reduced counterpart risks, but also that underlying credit risks have shifted toward sovereigns and portfolios of reference securities with better credit ratings.

      Click to read BIS Quarterly Review, June 2018.
 
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BIS warns of weakness in emerging markets' banks

    Banks from countries that are still enjoying financial booms may be weaker than they appear as reliable warning indicators are flashing red, said the Bank for International Settlements (BIS).
    BIS, known as the central banks' bank, said it was mainly concerned about financial institutions that are exposed to emerging markets, such as China, where economic growth is being fueled by unstable leverage based on a benign credit outlook and a potential for strong earnings.
    But BIS’ concern is not limited to emerging markets but extends to banks in some advanced economies, such as Switzerland and the Nordic countries where high market valuations “may be reflecting fast credit growth and frothy property prices,” BIS said in its latest annual report.
    Although several indicators, including non-performing-loan ratios (NPL), are signaling an upbeat message about banks in emerging Asia and Latin America, BIS cautioned that “such indicators failed to signal vulnerabilities in the past.”
    Because of their backward-looking nature, NPL ratios did not rise in advanced economies until 2008 when the financial crises was already under way, just as credit ratings and market valuations failed to warn of the imminent financial distress.

BIS: Monetary policy should lean against financial booms

    Central banks may have worsened the global financial crises by slashing policy rates in response to stock market crashes in 1987 and 2000, inflating a financial boom that ultimately collapsed years later, according to the Bank for International Settlements (BIS).
    To avoid a repeat, BIS is calling for a radical change in worldwide monetary and financial policy.
    Central banks should no longer just react to short-term fluctuations in economic output but take aim at the highly destructive force of the financial cycle as they ultimately move away from debt as the main engine of economic growth.
    Unlike business cycles, which tend to last from one to eight years, financial cycles are much more slow moving and can last 15-20 years, with debt in a myriad of guises slowly building up while property prices steadily inflate.
    Currently, the financial cycle is not on their radar screen of most central banks with the consequence that they often overreact to short-term changes in economic output and inflation, thereby generating bigger problems down the road, said the respected BIS in its annual report.
   By cutting interest rates over successive business and financial cycles and only slowly raising them afterwards, an asymmetrical bias is created, with the risk of entrenching instability in the economy, said Swiss-based BIS, known as the central banks’ bank.

Ageing workforce to push up inflation - BIS paper

    A shrinking and ageing workforce in many advanced economies will create inflationary pressures and may make it more difficult for banks to retain deposits and thus cut their high loan ratios, according to a working paper issued by the Bank for International Settlements (BIS).

    The paper, "Ageing, property prices and money demand" looks at the impact on property prices, inflation and money from the entry and exit into the workforce of the postwar baby boomer generation.

    Baby boomers saved by investing in property, boosting house prices and money supply. But now they are starting to retire, authors Kiyohiko Nishimura and Elod Takats, conclude that monetary policy will have to take ageing into account.