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Winston’s Weekly: US CPI data and inflation

The following transcript was AI-generated.

Manny Anton: Hi and welcome to this week’s edition of Winston’s Weekly, covering all things property. I am Manny Anton your host for today’s property chat. Winston as always welcome back!

Winston Sammut: Thank you Manny.

Manny Anton: Any stories behind that shirt today?

Winston Sammut: No, it’s just another floral shirt.

Manny Anton: All right. Well, let’s get started. Let’s start with rates and inflation data. So this week has been dominated, particularly in the US, by discussion around US rates. There have been some data points that have spooked the market a little bit. On Thursday, we saw a hotter than expected March CPI print in the US, which triggered a wave of selling, not surprisingly. Of course, one of the worst hit sectors was real estate in the US. So what are your thoughts on what’s occurred this week with regards to that rates data, the impact on on the real estate sector and the potential for it to impact on our own sector?

Winston Sammut: Well, the interesting thing is that whilst a couple of nights ago the markets sort of spent the dummy a little bit and they they went into overdrive in terms of selling down some of their investments, particularly in the real estate sector. I think the market’s getting a little bit impatient with with waiting for these rate cuts but realistically last night was a totally different situation where nobody seemed to care about inflation. Markets were relatively flat. It wasn’t as if it was an ongoing situation as far as selling down. The REITs did suffer a bit. But in the US, the REITs have been doing reasonably well over recent time, so it’s probably time for some profit taking. Interestingly, yesterday here in Australia was the market up and down about 3% it actually picked up over the course of the day and we only finished down a little bit rather than what was indicated earlier in the morning.

And I think it’s probably a case of people here buying the dip rather than sort of selling out altogether. So it seems to be there’s going to be a trading range at the moment. But we get back to the situation about investors (certainly in the US)  being a little bit concerned about whether these rate cuts are going to happen and they’re getting a bit impatient. But we’ve also got not the inflation numbers coming out in Spain, Germany, France and I think India. So I think we’re going to see a trend there in terms of what’s happening with inflation. And it’s those areas that are actually impacting that more than anything else. The services area, particularly insurance. I mean, we’ve had a lot of floods and storms and whatever.
And so premiums have been going up and have looked like they continue to go. All those sorts of fixed things that you need to have to cover your positions. Insurance, obviously, and that’s where the damage is being done. And I don’t see that sort of changing in the short term.

Manny Anton: Okay. I mean, with regards to that European point you’ve just made, I did notice overnight, Christine Lagarde made some comments. She made it very clear that the European economies were very much not, linked to US decisions on rates. They she made it very clear that they will be making their own decision on rates. And in fact, the view there is that the Europeans will actually cut rates for the US.

Winston Sammut: Well rates didn’t move last night in Europe.

Manny Anton: So that’s definitely a possibility. Yeah. Okay, great. So there was some other news out in the US, which I thought was interesting during the week. Blackstone. So the world’s largest commercial real estate owner, they stepped up their bet on property in the US. So, so they came out and said they plan to acquire the apartment income REIT. For around about $10 billion. What are your thoughts on that?

Winston Sammut: Well, look, Blackstone’s a very, very big heavyweight player in the market, it’s got a lot of cash. It’s got to deploy that cash. And they’ve invested in the US multi-family sector, which is a very big sector. I suppose he you can look at it from the basis of our ‘build to rent’ exposure going forward is going to be in a similar sort of situation, but it is a very, very big sector in the US and it’s layered in terms of the pricing, in terms of what’s available is from the lower end up to the higher end and where they’ve moved in is towards that higher end of the market, the better quality assets. And as I say, they’ve got a lot of cash, they’ve got to deploy it. They’re seeing some value in there at the moment. So, you know, it’s not a big surprise, I guess, but they do have a lot more cash to spend in property on a global basis. So we might see some some action here as well.

Manny Anton: Can you see any Australian property developers or owners going down that same path? That sort of ‘apartment’ / ‘multifamily’ –

Winston Sammut: Yeah. There are a couple of groups that have actually started to dip their toes, as it were. Mirvac has got a small exposure in the build to rent space. And I think we’ll see other people, other groups involved in that area. Build to rent being, at the moment (given the affordability of people buying homes) is is a good a good offering for the public. For those people that can’t afford to buy.

Manny Anton: Yeah, well staying on that point actually. Let’s turn to more domestic matters. Also during the week there was some ABS data out ,well it was released on Wednesday, that saw dwelling commencements over the last calendar year under shoot by almost a third. So, you know, they fell to 163,000. And that that is basically the weakest number since, I believe, 2012. What are your thoughts on that? I mean, well, it’s, you know, adding fuel to the fire again on the residential side.

Winston Sammut: Well, that is one of the issues facing the Australian economy at the moment, which is not building enough homes for the demand that’s out there. And why why is that happening? Well, construction, I guess, overall in terms of other areas is quite strong. So labor is short in some areas. A lot of smaller builders have gone under over the last few years, primarily because they had fixed price contracts and they’ve been caught in the situation where they’ve had to buy material at higher prices. So it’s been a difficult market for for for that industry and I suspect it’s likely to continue for some time. Until rates actually start to come down and people feel more comfortable about taking on a mortgage. I think we’re going to see some issues in the home building industry.

Manny Anton: Yeah, it seems to be almost a perfect storm.

Winston Sammut: Yeah.

Manny Anton: In particularly and it’s obviously going to impact residential. Well it would be remiss of me, of course, not to ask for an update on what’s happening with the BWP new Mark transaction. They got their 90% yes or not?

Winston Sammut: No, no! Well, that’s interesting because the bid was meant to finish. The offer was meant to expire today, but yesterday they came out and announced that they’ve extended it for another two weeks to the 24th of April. And that’s because at this stage they’ve they’ve got 77%, which is shy of the 90 they require if they want a compulsory acquire. I’m not sure why it’s been a bit slow but then again the Bunnings price has come back as well with the market coming back a little bit. And so the ratio of 0.4 Bunnings shares for every Newmark share has come back and it’s now sort of sitting around 1.33/1.34 when at the peak it was around 1.42. So I’m not too sure whether it’s a lot of small investors who haven’t got the news, as it were, and slow to act, I’m not sure. But they have extended it for another two weeks. So we still have to wait and see.

Manny Anton: Okay. We’ll check in with you on that one next week. Alright, so looking forward to next week. Is there anything on the news front? We should be looking for anything big coming out?

Winston Sammut: No, nothing out of the ordinary that I’m aware of. As I said, I think the situation at the moment, given what we saw yesterday, where the REITs didn’t fall as much as was expected, matching what was happening in the US, I think it’s a situation where investors are looking to buy the dips rather than rather than sell out or reduce their exposure altogether. So I mean the REIT sector is offering an income stream which is quite attractive. And so from that perspective that that’s going to continue.

Manny Anton: Alright. Well, Winston, thank you again, as always, for your time and your insights today. That was fantastic.

Winston Sammut: It’s a pleasure.

Manny Anton: And we will be back with another edition of Winston’s Weekly next Friday. Until then, have a great weekend.

Disclaimer: Sequoia Financial Group (ASX:SEQ), the parent company of Finance News Network, owns a 20 per cent interest in Euree Asset Management.