In the wake of Brexit, investor fears on the value of property, especially in London have surfaced.
A flurry of redemptions from property funds is so great that three UK fund managers froze redemptions. And the British pound is at 100-year lows.
British Pound
Three Funds Freeze Withdrawals
Bloomberg reports Brexit Erodes U.K. Economic Pillars as Property Investors Flee.
Three asset managers froze withdrawals from real-estate funds following a flurry of selling and the pound plunged to a 31-year low less than two weeks since the nation backed quitting the European Union. Rushing to fill the political vacuum, Bank of England Governor Mark Carney signaled easier monetary policy and urged prudence on households.
“I am expecting quite a sharp reduction in investment spending, a sharp hit to the commercial property market, probably a check to consumer spending, all of which could push us towards zero or below growth,” John Gieve, a former deputy governor of the Bank of England and veteran of the last crisis, told Bloomberg Television.
Reacting to a rush by investors to redeem their money, M&G Investments and Aviva Investors followed Standard Life Investments in suspending trading in commercial-property funds that together total 9.1 billion pounds ($11.9 billion dollars). Industry analysts have warned that London office values could fall by as much as 20 percent within three years of the U.K. leaving the EU.
20% Correction a Bad Thing?
Property values in London are so ridiculous, one has to ask: Are falling real estate prices a bad thing or a good thing?
Is 20% just a start of what’s to come? Is Brexit to blame or simply a catalyst for an eventuality already baked into the cake?
On a side note, I seldom link to Bloomberg anymore. In fact, I seldom even read Bloomberg anymore thanks to auto-play videos that are hard to kill. I cannot stand autoplay, and nearly every Bloomberg article comes loaded with the damn things.
Mike “Mish” Shedlock
20% correction x 40:1 leverage = kaboom
It was just a normal “real estate” bubble.
Anything can and would pop it.
Foul for them to blame Brexit!
The Londoners are just about as smart as the Parisians investing in John Law’s Mississippi Company……..
http://mshistory.k12.ms.us/articles/70/john-law-and-the-mississippi-bubble-1718-1720
Now it is 3? The math is adding up quickly.
“Industry analysts have warned that London office values could fall by as much as 20 percent within three years of the U.K. leaving the EU.”
How much worse will they be if the U.K. stayed in the EU, giving up it’s nationhood?
Much!
Freedom ain’t free.
All these property trends started several years ago, before ex-PM Cameron promised to allow the people he worked for to express their opinions.
Too many tax evaders, from Russia, from Arkansas USA (Clintons), from wherever George Soros is from, from Brazil, from Venezuela, from China … have been using foreign real estate to launder money from dubious sources.
They don’t care if they lost 5-10% …. it was stolen money anyway.
Three UK funds just realized that the so-called “hot money” in their funds had a much much much shorter investment horizon than the fund managers thought…
… or the investment horizon was shortened when the tax evaders realized the angry mob outside had told the sheriff to make some arrests or else.
The title of the post should read: “Three UK funds panic after realizing the sheriff is no longer doing the bidding of the crooked political class”
“Bear Stearns is fine.”
“The subprime contagion is well contained…”
. — Ben Bernanke, PhD committee to save the world
“FNMA is not insolvent, and if it became insolvent would not cost the taxpayer a dime”
. — Barney Frank, the Congress-liar who co-sponsored the Frank-Dodd Financial excuses act
So call me an idiot here…you won’t be the first or only…but how does a currency collapse get solved by lowering interest rates immediately again?
Canada said the same thing when the dollar nuked the Loonie last year.
What part of “I don’t want your money” don’t these Central Bankers understand? Sure…you can have all the “negative rates” you want…throw Italian pensioners under the bus and tell the Pope to drop dead like President Obama…don’t matter to me.
My question is this though: are Government employees paid in gold? No? Really? Wow…what a surprise. “We all gots printing presses our’s is just better than yours.”
Got it.
What? This is how you pay for a War going on 15 years you say? Well…now that lying to the FBI is perfectly legal I’m sure that makes it all better then. Oh, no! Mary Jo White! Wall Street is fleeing in terror!
I have invested in Asian properties starting 15+ years ago. Recently sold one big development that I had owned 10+ years. The buyer, a wealthy Asian businessman and lawyer, had to resort to delaying payments with rather heavy fines which he paid. Now it’s all done and dusted. He said that money coming in from his other investments was not flowing as expected and been in the area myself so long I can believe it.
Couple of years ago – being more precise perhaps 5 to 6 years – the real estate investments were still reasonably priced. Now the prices are just out of this world. I have always done my due diligence expecting 7-12% profit per year after taxes. In this way I get the capital back in 15 years or so. With the new mark-to-fantasy values I see new buyers doing no profit for a looooooooooong time if ever.
One plot of land that I was interested in was for sale 500% higher what I considered viable. At this time, no sales are going ahead. Much of the trade is done by people who have to sell to keep afloat. They are lucky to find a buyer in this market situation. Myself, I keep a little pause for couple of years to see where all this is going.
“Property values in London are so ridiculous…”
My cousin lives in Wembley, ‘greater’ London, about a quarter mile from the stadium. His house, which is about 80 years old, is a described as a ‘3-bedroom semi’ (duplex) and I would estimate it at about 1500 sq ft or less with a back ‘garden’ about the size you would expect of a duplex in the US. It needs a work and, in the Phoenix area, the house would surely go for less than $60k. However, according to my cousin, houses like it fetch 600k pounds or more. He suspects this is going to be changing in the near future.
We owned a 3 bed with small garden in Twickenham , parents bought late 70s sold early 80s for well under 100 000 pound , now something the same is around a million .
The following article popped up while I was looking through prices , it notes “40% of the UK’s national wealth is in the form of southeastern property” :
http://boingboing.net/2016/07/02/london-luxury-property-prices.html
UUGGGHHHH!!!
“Are falling real estate prices a bad thing or a good thing? ”
Falling prices is almost always a good thing. The lone exception is when they are falling due to the legitimate (as in non fiat) currency they are denominated in, is literally disappearing. Say, your country us stuck forking over its gold in war reparations.
A desire to hold cash instead of funds is helping the pound sterling find a bottom.
Any move into cash is bad news for credit….especially when those cash moves are literally “stopped out” since that means massive solvency issues are afoot and plunging yields represent a “last gasp” before the whole fiat money regime explodes (soaring gold, silver, palladium…panic pricing for any form of liquidity.)
The “system” is already out … as in gone … 3 trillion dollars give or take. Such “disappearances” cannot be made up by converting into cash
a: because the cash is not being made available but more importantly
B: The Money might be worthless
Therefore you start going from an irrational conceit to a “financial terror” circa 1929 where what once was an asset that couldn’t be had for under a million (pounds, euros, dollars, yen, Yuan) now suddenly is a vacant lot for sale for one dollar. The “reflexive response” from authority is to print because obviously there won’t be any revenue to recognize for the purposes of say…hiring a dog catcher for example. Indeed there just won’t be any cash MONIES (revenues) period. This usually begins a flight beyond “perceived safe havens” (debt) to gold and more importantly in my view silver as what people are seeing is a transactional amount and not actual money. In other words the debt can’t reset to anything other than default basically leaving each respective Government to print a bazillion trillion quadrillion to make everything “all right now.” Meanwhile Wall Street will start the bidding process (again…just like 2008) on how to “shape” this “monetary form.” The first obviously is to invest in companies that specialize in containing the societal repercussions of this time an entire series of Financial Weapons of Mass Destruction going off all at once. The two biggest beneficiaries I have noticed are Smith and Wesson and Textron. Obviously General Electric is nother great Bogey as they in effect are powering the entire US Navy right now.
Interest rates must and indeed are soaring…and have been for over two years now. No one notices because the US dollar is not a “trade able instrument” meaning it merely reflects what’s going on in the US economy … thereby providing a profound illusion to the global marketplace. (“We can just lower interest rates!”) As Russia and Brazil have discovered this is in fact not the case at all. Mexico is in fact raising rates right now…to no good effect. All this global inflation therefore is converted first into dollars then maybe Yen but after that…silver and gold. Not even oil is getting a bid right now.
If the Dow drops 2000 points tomorrow these “super negative rates” will reset…first to US dollars (the Yuan has been crashing for 9 months now) but then to whatever prevents starvation , war , anarchy, … a nuclear strike … a weapon no one knew even existed ….
I do not know how they come up with the pound being at 100 year lows. Compared to what. When I was in the UK in the 80’s the pound was at parity with the dollar. It is still 30% higher than that. However they did the calculations it is rather strange.
It peaked at a low of 1.05 or close in Feb 85, probably they used monthly or yearly averages to find the headline.
The price of gold by 1986 was well under 400 dollars an ounce and oil was at eight US dollars. Silver was under 5 US dollars. Your “Pound Sterling” is barely an ounce sterling now.
No offense to the Brits (they seem to have bottomed and are on their way back to reality)…
But I am far more concerned with corruption here in the USA. OJ Simpson is the democratic nominee, thanks to an FBI guy that doesn’t listen to himself. Democratic voters wanted Sanders, but the party oligarchs said OJ or bust.
So we have to pin our hopes on a reality TV guy who might fix the economy. We’ll have to endure 8 years of endless whining from TV networks who love the corruption more than the ratings.
Long netflix and redbox, short all the TV propaganda networks.
PS — I wouldn’t click on a Bloomberg link even if I was paid to. Horrible website with news made up by college “safe-spacers”.
An open-ended investment fund which owns illiquid assets is a disaster waiting to happen.
The number of funds that have closed just went from three to seven. I shall leave it to Mish to chant ‘sell now!’, though in this case the first step in the path to selling may be “Warm up the Time Machine. Set destination for ‘Last Week’.”
With Firefox, go to Bloomberg website, click on symbol to left of the http in address bar, click around till you find ‘Permissions’ (will apply to that site only) then Block Adobe Flash, Works for me.
Hi Mish. Couldn’t find anywhere else I could post this so here will do. I was wondering what your take is on the future trajectory of the pound. Personally I think it will rise again – certainly not to the highs it hit prior to the exit, but at least to 20% higher than it is now as soon as there’s A LOT more certainty about Britain’s future. What do you think?
Just a guess but the feaars of Brexit are overstated. But … we do not know what the agreement will be – If the UK works out a Norway style agreement the pound likely to soar.
Off the top of my head, I expect weakness until the UK officially files for divorce