Brutal adjustment on property funds in the UK

The logic behind the brutal adjustment on property funds in the UK is quit simple.
For non resident investors, the deep depreciation of the sterling has led to lower or negative returns. At the same time the UK economic and financial environment appears gloomy and uncertain creating incentives to limit portfolio exposure to assets of this country.
The property market is a market with low liquidity even in normal time. It takes time to sell an asset; that’s a major characteristic of this market. When there are massive flows of redemption this low liquidity vanishes. What is new, is that the environment and expectations are gloomy, therefore nobody wants to invest in this type of asset. It’s even harder on this market as prices are already very high. What could be the return for a new buyer? That’s the important question. Clearly the answer is probably negative and nobody wants to take this type of risks.
Therefore property funds are not able to manage the flow of redemptions. By definition this market has low  liquidity. In the current environment this liquidity has vanished. The mechanism of adjustment is blocked: lots of sellers but no buyers. That’s what we’ve seen in recent days.
There are two options: one is to let the invisible hand in an environment in which the currency will continue to drop (see here). The possibility of a run is not null in that case. It will be the role of the central bank to intervene. The Bank of England is more proactive after the Brexit and it will have to continue.

France – Housing Starts are back to 1998 level – Housing crisis

The chart below shows housing starts in France since the beginning of 1995. The sum over 12 months is at 312 000 in May 2014 and can be compared to the level seen at the end of 1998.
This chart shows the housing problem in France. After a strong period in 2003 – 2007 and robust but unsustainable tax incentive period in 2010/2011, housing starts are back to their long-term trend (between 300 000 and 350 000 per year). This has to be compared to French population. Between January 1995 and May 2014 it has grown from 59 281 000 to 65 906 000. Between 1990 and 2010 the households’ number went from 21 942 000 to 27 715 000.
With these figures in mind, are you surprised by the housing crisis in France? Too many people, too many households for the number of new houses.
The target of 500 000 that was announced by the former Housing Ministry, Cécile Duflot, in 2013 is still too far from being reached. Continue reading

Real Estate Price in France – Two simple measures of dearness

INSEE, the French statistical institute, has just released the real estate price index for the last quarter of 2013 (existing home index). With a decrease of -1.4% it is just a little below last year level. That’s what the first chart below shows. After a strong uptrend profile until 2006, the index dropped during the crisis. The question is to know if the price now is cheap or still expensive. I have looked at two simple measures to gauge the real estate price. We need comparison for that: a price by itself is meaningless. Continue reading