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Jeremy's Blog 22nd January 2021: Valuation

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 21st January 2021.

Ten months into the pandemic, Wizz Air, the central European budget airline with an 80 per cent fall in passenger numbers, has issued a three year corporate bond paying just over 1 per cent. Ultra-low interest rates have prevailed unprecedentedly since the 2008 financial crisis. UK and US bonds remain at low rates, much EU member states’ government debt is at negative interest rates and, yesterday, 10 year Eurozone bonds were at -0.53 per cent. All have increased quantitative easing, resumed in the pandemic before it had been unwound from the financial crisis.

It offers the Government the opportunity to develop its infrastructure programme, able to borrow for projects that increase the economy’s capacity by more than the cost of the debt. Many will see compulsory purchase and the pressures of climate change will drive talk of the green recovery.

Such loose money (or cheap finance), needed now to keep a shocked and disrupted economy on life support, has fed into asset values as investors have adjusted to prevailing conditions, but not as yet to the price inflation that would usually prompt tighter policy. The balance of the supply of and demand for credit has changed, affecting the price of credit and of assets.

Behind this lie reasons, including world demography, for a surplus of savings driving rates down, supporting higher values. Even if that is a trend, such trends can overreach and governments, now badly exposed, can cower before changing bond markets. Some see warnings in the three-fold increase in the price of Bitcoin and the price of some tech stocks.

We have still to find how we emerge from the pandemic, what might really be the “new normal”. Some trends, as perhaps from physical retail to warehousing, seem accelerated. We will not foresee others, making these waters difficult for businesses to navigate. The resilient, the astute, the brave and the lucky will make the new economy.

Prices are the signals people give in the interplay of supply and demand, stimulating further change. There are specific issues in this for property as well as large ones. Members will advise and report on rural land use and values as they may change, while a coming change in Scottish law requires consideration of the investment value of let farmland and what might be paid to assign a tenancy. The principles may be old but supply, demand, appetite and finance will guide how they work out in markets yet to appear.

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