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Patient London FTB

I Smell A Bailout For Foreign Investors In London

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Just trying to articulate my thinking having seen Carney's speech and digested the plunge in sterling, housebuilder stocks and banks since Brexit.

My theory is the most immediate pain point is the housebuilders and the new uncertainty of their income stream from foreign investors who have either up-front funded developments or committed to property purchases based on the pre-Brexit environment. The investors are suddenly facing a loss with sterling dropping and the banks who lent on those developments must be facing writedowns.

The housebuilders apparently demanded an emergency meeting today with the housing minister, for unclear reasons. But I would speculate that they're raising the alarm on their funding and making the case that all those homes the Government has been promising the market will provide soon are not going to arrive unless they get some sort of support.

Carney's speech today does float rate cuts, but also explicitly says that ZIRP could backfire because it has already been shown to reduce credit availablity or increase its price (exactly what they don't want for the housing market). But I think another reason the BoE will want to avoid rate cuts is they want to avoid a further plunge in sterling because that will worsen the position of overseas investors' investments in the UK.

Don't forget that the BoE have been co-ordinating with overseas central banks to keep the decline in sterling orderly, while the UK's current account deficit is already dangerously high.

So what the BoE/government need to do is to avoid writedowns for banks, UK and overseas, on London residential (and probably commercial) property, as well as give those overseas investors the incentive to see their investments through to completion.

The question those more familiar than me with finance is how are they going to go about doing that?

Edited by Patient London FTB

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^Links to :Singapore Bank Halts Lending On London Property

HTBF. Help to buy for foreign millionaire investors?

But....but.... I thought they were all CASH buyers?!!!

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The housebuilders apparently demanded an emergency meeting today with the housing minister, for unclear reasons. But I would speculate that they're raising the alarm on their funding

Here's an idea....get their f**king fund from the £600M that persimmon just paid their directors

Edited by TheCountOfNowhere

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Here's an idea....get their f**king fund from the £600M that persimmon just paid their directors

Welcome to capitalism aka corporate casino socialism

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Here's an idea....get their f**king fund from the £600M that persimmon just paid their directors

Big payments to directors can be a sign that the ship has sprung a leak and the cargo needs removing asap.

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The housebuilders apparently demanded an emergency meeting today with the housing minister, for unclear reasons. But I would speculate that they're raising the alarm on their funding and making the case that all those homes the Government has been promising the market will provide soon are not going to arrive unless they get some sort of support.

Whats the housing minister got to do house builders?

Carney's speech today does float rate cuts, but also explicitly says that ZIRP could backfire because it has already been shown to reduce credit availablity or increase its price (exactly what they don't want for the housing market). But I think another reason the BoE will want to avoid rate cuts is they want to avoid a further plunge in sterling because that will worsen the position of overseas investors' investments in the UK.

QE is a bad idea for more than 2 years.

We are seeing private pensions collapse.

The UK is get to the point of not being able to borrow in its currency.

Once we go over the point of no return theres no ECB or Germany to bail us out.

Don't forget that the BoE have been co-ordinating with overseas central banks to keep the decline in sterling orderly, while the UK's current account deficit is already dangerously high.

They meet with other central bank. The BoE is a long way fro mcoordinating anything. They are a minor central bank, much smaller than the ECB, Fed, Chinese bank. If they talk then no one will listen.

So what the BoE/government need to do is to avoid writedowns for banks, UK and overseas, on London residential (and probably commercial) property, as well as give those overseas investors the incentive to see their investments through to completion.

The pouns fallen. Thats a massive writedown.

Currency risk with sterling now is large.

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...Carney's speech today does float rate cuts, but also explicitly says that ZIRP could backfire because it has already been shown to reduce credit availablity or increase its price (exactly what they don't want for the housing market). But I think another reason the BoE will want to avoid rate cuts is they want to avoid a further plunge in sterling because that will worsen the position of overseas investors' investments in the UK.

Glad you picked up on that as well. It was some comfort to me against the policies they've signalled they'll be attempting in future. Was something just to read them admit that balance of risk.

I've leant with this optimistic view (below), and that owner side (with £Trillions in equity) are carrying all the risks, although Carney's positioning of today suggests we're way off that - unless someone can convince me otherwise.

To protect foreign buyers to protect balance sheets of UK/overseas banks? Why would BoE be concerned about foreign banks? I've seen offshore specialist financing (Channel Islands). Read suggestions of foreign banks involved on UK residential lending. I presumed, as they were lending to BTLers, that these lenders would have run the numbers... deposit and security on asset itself.

I don't know extent of involvement of UK banks to all the offplan newbuild buyers. It seems a bit of a shaky theory to me. Could accept it more from getting more foreign buyers to buy up the rest of the newbuild capacity vs lower sterling... when will it ever stop?

You totally misunderstand how this works. Bank solvency is threatened by two mechanisms.

On the one hand if those who extend credit to it refuse to continue extending credit. Tthis is what happened when suspicions regarding the underlying quality of the RMBS being used as collateral shut down repo markets and thus cut the banks off from a major source of their funding, and likewise this is why we have the new £85k limit on the FSCS so that retail savers don't pull out their money and switch it into notes as opposed to bank credit, both of which then go under the bed). Both of these problems are solved. If you look at the thread on the various M4-like measures you can see that the 'funding gap' has gone, and the banks' reserve accounts at the Bank of England are phat with a capital ph.

On the other hand a failure of bank borrowers to honour their commitments as they fall due can undermine solvency as they have to call in the loans and book the losses. However, the new very low rate environment means that even in this weak economy a healthy dose of forbearance has alleviated this problem too.

Finally because of recourse lending in the UK falling house prices do not in and of themselves lead to losses on the mortgage book. That only happens when you have falling prices and people who can't pay their mortgages.

The banks are ready to deal with what is coming. A small number of households are not, but this country has never made policy on the basis of what the weakest borrowers can and can't deal with.

If you think the banks still have skin in the game defending these prices, you're just plain mistaken. They make more money churning loans. For that you need transactions and for transactions you need lower prices.

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To protect foreign buyers to protect balance sheets of UK/overseas banks? Why would BoE be concerned about foreign banks? I've seen offshore specialist financing (Channel Islands). Read suggestions of foreign banks involved on UK residential lending. I presumed, as they were lending to BTLers, that these lenders would have run the numbers... deposit and security on asset itself.

I don't know extent of involvement of UK banks to all the offplan newbuild buyers. It seems a bit of a shaky theory to me. Could accept it more from getting more foreign buyers to buy up the rest of the newbuild capacity vs lower sterling... when will it ever stop?

To clarify, I think a key ingredient of the stress here is what happens to the various overseas companies who are active in London residential (and commercial) developments, more so than the overseas end buyers of the individual properties in those developments. You've got Qatari Diar redeveloping the Shell Centre with Canary Wharf, China's Dalian Wanda active in Nine Elms and of course Malaysian investors behind Battersea Power Station.

With the drop in sterling and the new economic and political uncertainty facing the UK, what happens to the carrying value of their investments? Do they take a writedown and what does that mean for their lenders, presumably back in their own countries? Presumably those concerns would feed back to the BoE via the central banks in those countries.

If they do take writedowns does that force a writedown of the developments being undertaken by UK developers and funded by UK banks? I don't know, but I'd like someone to tell me.

To add to all that, if overseas end buyers who've put down deposits on UK developers' pipelines cancel or don't complete, what does that do to the carrying value of those assets?

Edited by Patient London FTB

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All kinds of things around state support for housing with Help to Buy and state instructions for housing with Starter Homes and affordable housing.

Thats the treasury.

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Thats the treasury.

Not all of it - for example the Starter Homes regulations are coming out of the DCLG, the housing minister's department: https://www.gov.uk/government/consultations/starter-homes-regulations-technical-consultation

And some is probably the joint responsibility of the DCLG and the Treasury. But anyway, maybe the housebuilders really wanted to see the Treasury but got fobbed off on DCLG ...

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^Links to :Singapore Bank Halts Lending On London Property

HTBF. Help to buy for foreign millionaire investors?

But....but.... I thought they were all CASH buyers?!!!

Sorry to wind the thread back a bit .. but it always warms the cold cockles of my cold heart when somebody can spot the obvious fraud. It's often too outrageous / too much of a conflict of interest to believe such an extensive fabrication can continue so long. But I always say read "popular delusions and the madness of crowds," and then refute my claim of delusions with evidence or give it to me and I'll do it. I need traced source accounts on a random sample of "cash sales." Unfortunately, just like Scientology .. such evidence is not available to those who can't be made to believe.

And back on topic - there will be immense financial stress on anybody with an overseas leveraged bet who receives income in Sterling (e.g. somebody based in the UK but with a loan in a foreign currency). That's basically exported manufacturing and the odd absurdly stupid property investor. But we haven't cared about manufacturing or our productive capacity for years so I don't see why we'd start now. Lower rates and big bailouts all round I'm sure.

In a universe where the only rule is entropy .. the only stupid thing is doing the same thing every time.

Edit: edited for clarity, speeling and more bailout!

Edited by Kinky John

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Here's an idea....get their f**king fund from the £600M that persimmon just paid their directors

Apologies for off thread....but director pay is my biggest issue with modern business.

Most annoying thing about director pay is the BBC will get some self made millionaire chirping on about how it's taken him 30 years to build his company. How he adds value to the economy and how he employs 50 people.

Yep, different type of director and everyone knows it's their company and he put in and he can take out. If fact he can run it into the ground if he wants....it's his.

But big company directors are just employees. Never took the risks to set things up and usually only been at the company a few years.

Never mind.....I guess the shareholders vote for the directors pay. Oh wait....the main shareholder are directors of other big corporates...hmmmmm.

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Sorry to wind the thread back a bit .. but it always warms the cold cockles of my cold heart when somebody can spot the obvious fraud. It's often too outrageous / too much of a conflict of interest to believe such an extensive fabrication can continue so long. But I always say read "popular delusions and the madness of crowds," and then refute my claim of delusions with evidence or give it to me and I'll do it. I need traced source accounts on a random sample of "cash sales." Unfortunately, just like Scientology .. such evidence is not available to those who can't be made to believe.

The term 'cash sales' doesn't have a true definition. A while ago Paul Shamplina and a property legal expert debated this very point. Their consensus was a sale where purchase funds were secure. A letter of proof from a licensed overseas bank could and would count as a cash sale. It was the proof that funds were available immediately that counter.

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The Times are reporting what the housebuilders are calling for:

http://www.thetimes.co.uk/edition/business/ftse-bosses-draw-up-battle-plans-to-cushion-brexit-blow-dbzx9rvsx

Pete Redfern Taylor Wimpey

He said ministers should consider a “basket” of three or four measures, including some reductions in stamp duty levies until the end of the year.

Stephen Stone Crest Nicholson

....temporary nationwide extension of the more generous London version of Help to Buy, the scheme that offers purchasers up to 40% of the cost of a new-build home in the form of an equity loan.

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The Times are reporting what the housebuilders are calling for:

http://www.thetimes.co.uk/edition/business/ftse-bosses-draw-up-battle-plans-to-cushion-brexit-blow-dbzx9rvsx

Pete Redfern Taylor Wimpey

Stephen Stone Crest Nicholson

Ill write this slowly - *UK~GOV IS SHORT OF REVENUE. HOUSEBUILDERS HAVE HAD THEIR UNDESERVED BAILOUT IN 2010 THEY CAN STAND OR FALL ON THEIR OWN NOW*

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So the builders want the government to prop up the housing market to the tune of 40% now that their model of selling to investors is shot. Another classic case of capitalists wanting socialism when they are in trouble.

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So they still can't make a profit and build houses despite all the bailouts, land banking, imported cheap labour and cheap construction materials manufactured overseas and despite land prices and construction costs having risen over the years at an exceptional rate compared to other countries - along with mega crazy houses prices for poor quality and tiny homes.

Tiny homes - the tiniest in europe and the most expensive in the world.

https://www.dallasfed.org/assets/documents/institute/wpapers/2014/0208.pdf

Figures 23 and 25.

They should be shown the door - booted out on their ******

Edited by billybong

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http://www.thetimes.co.uk/edition/business/ftse-bosses-draw-up-battle-plans-to-cushion-brexit-blow-dbzx9rvsx

Business leaders are mobilising to protect key industries as paralysis grips Westminster in the aftermath of the vote for Brexit.

Chief executives this weekend expressed dismay at the uncertainty exacerbated by the fractious Conservative leadership battle and the loud calls for Labour’s leader to quit. The unprecedented turmoil raises questions over when and on what terms Britain will extricate itself from the EU. Paul Drechsler, president of the CBI, said businesses needed “to have leaders in place that will address with urgency the issues that matter”.

The LibLabCon starting to fall apart - and not before time.

If for no other reason Corbyn should stay on.

Edited by billybong

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If HTB40% goes nationwide, it's time to buy regardless of emotional opposition I think. Would be the clearest indication yet of a commitment to HPI from the top. I stood by incredulously when the schemes were first rolled out....not making that mistake again.

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