The Shellacking Continues as Britain is Just the Tip of the Real Estate Iceberg

by John Galt
July 5, 2016 20:50 ET


The absolutely bull whipping of investors in foreign real estate continued today as 2 more property funds in the United Kingdom froze redemptions after Standard Life started the ball rolling on July 4th.

M&G became the third company to shut down redemptions from its property fund as it stated (via Bloomberg):

“Investor redemptions in the fund have risen markedly because of the high levels of uncertainty in the U.K. commercial property market since the outcome of the European Union referendum.

Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension in trading.”

This means that not only are people trying to flee the British real estate investment market before the English Pound declines even further versus the U.S. Dollar, but before the government stops investors from fleeing so as to give these companies enough time to liquidate assets to fill redemption requests.

But the United Kingdom is not the only problem.

Italy is on the verge of a major banking crisis so severe that Prime Minister Renzi is considering unilateral action outside of the legal parameters acceptable to the European Union and European Central Bank. There is even discussion among the minority parties in Italy, and Renzi is listening, about calls for a referendum on Italy to withdraw from the European Monetary Union, attempt to negotiate the trade agreements to remain at status quo, and reintroduce the Italian Lira to replace the Euro!

Such a course of action or even the European Union mandated “bail-in” process, will lead to all foreign investment in that country to flee starting with real estate holdings and equities, eventually leading to a rush for the exits to liquidate Italian government and corporate bonds.

The theory being propagated by the financial world and Bubblemedia is that the funds currently leaving the U.K. and Europe will return to the relative safety and higher returns available in Asia. Unfortunately for them, that theory is also being blown out of the water as real estate holdings in Singapore and Hong Kong are starting to face major headwinds.

From the South China Morning Post on the evening of July 5:

Hong Kong property sales plunge nearly 40pc in past six months


Hong Kong’s overall property sales plunged nearly 40 per cent in the six months ending June compared with last year, according to the latest figures from Midland Realty.

Despite a recent improvement in sentiment, the agent said the dim economic outlook and increased home supply continued to cast a shadow over the market.

Midland said it had “the worst six-month number recorded” since it started surveying prices in 1991, after registering 26,571 deals in the period, a 39.1 per cent slump on the 43,636 deals signed in the first half of 2015.

The latest figures show total sales values fell 39.2 per cent in the six months to HK$189.5 billion, according to the data released by Midland.

So if Hong Kong is experiencing a slump in one of the most expensive real estate centers of the Western world, what is happening in Singapore? Also from the SCMP on June 7, 2016:

Singapore property market heads for bottom faster than Hong Kong, says fund manager


“Between Singapore and Hong Kong, I think Singapore has more price downward adjustment. So, we like it and we are keeping an eye on there,” said Richard Yue, chief executive at Arch Capital.

In contrast, Hong Kong property is still expensive and it is expected that home prices in the New Territories – where new supply is heavy – could face more consolidation than those in urban areas.

“I do not have a crystal ball,” he said referring to when the Hong Kong correction will end.

LaSalle Investment Management last week said Singapore’s property market may be closer to a bottom than Hong Kong.

A turning point in the city state’s property cycle “is probably closer and more advanced than Hong Kong, so we feel the market is bottoming out”, LaSalle said.

The problem is not which nation or banking system hits the bottom first; the problem is what happens if the house of cards in China and/or the United States collapse before a true bottom is found in any nation pushing the world into a worldwide a recession or worse. Stay tuned as American commercial real estate is already flashing warning signs that the next recession is on the horizon.

In the mean time, I return my reader to the Bubblevision mantra of buy moar stocks:


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