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tuggybear

Banks Exposed By Commercial Property Slumps

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And you know that the most popular investment of the last year was.... REIT's....those tax friendly property investment vehicles launched by the Government at the very top of the market. And people aren't being allowed to get their money out now because the investments are too 'illiquid' for the scale of redemptions being experienced. So they'll just have to watch their money fall. Excellent. Well done HMG.

REIT's (real estate investment trusts) are nothing new, much like joint-stock companies and mutual funds.

As usual each time they are introduced as some new "innovative" financial product, when they're just a rehash of leverage schemes that have failed in the past.

As soon as you hear the words "innovation" and "finance" in the same sentence, it's time to get worried.

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REIT's (real estate investment trusts) are nothing new, much like joint-stock companies and mutual funds.

As usual each time they are introduced as some new "innovative" financial product, when they're just a rehash of leverage schemes that have failed in the past.

As soon as you hear the words "innovation" and "finance" in the same sentence, it's time to get worried.

Gear today, gone tomorrow.

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Would it be fair to assume that the UK's commercial property market is generally much closer to a state of over-supply than the residential sector? (Except perhaps in the case of BTLs in some cities.)

We know there is still a strong demand for home ownership among the 'almosters' - people who would buy if their financial circumstances and the property prices were a bit more favourable. But is that the same with speculative commercial developments?

Also, in a downturn, people still have to live somewhere but when businesses fail they simply cease to exist and their premises become empty.

Edited by Sofa Spud

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Would it be fair to assume that the UK's commercial property market is generally much closer to a state of over-supply than the residential sector? (Except perhaps in the case of BTLs in some cities.)

We know there is still a strong demand for home ownership among the 'almosters' - people who would buy if their financial circumstances and the property prices were a bit more favourable. But is that the same with speculative commercial developments?

Also, in a downturn, people still have to live somewhere but when businesses fail they simply cease to exist and their premises become empty.

yes but commercial property prices have fallen more rapidly (about 10-15 already?) and futures pricing another 20-30% by end year so maybe that's already moved to a new clearing price?

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A few points;

1 Generally, supply / demand balance in commercial in the UK occupational market is OK. Stresses coming up in secondary retail and City/Canary Wharf offices, for sure, but still not like the early 90's overdevelopment situation.

2 UK REITs are simply tax efficient versions of listed property companies, and not generally overleveraged. Note this is different from the USA, where I know some posters on here come from.

3 The property funds which are closed to redemptions are not REITs, as REITs are listed, so anyone can sell at the market price at any time.

4 The commercial property market has come off 10-15%, but I don't know of anyone who is predicting a further 20-30%. I guess the "futures" market referred to above could be share futures, but that reflects many other factors than just the value of property.

5 Finally, commercial property drops quicker than residential because of regular valuations, whereas residential proof is only based on marginal sales.

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I have just walked up to look round a major new business park being devoled on the edge of town. It's a nice place, in a grey cladding kind of way. Phase 1 is probably about 75% built and a lot of units in use. Every time I go up there a new steel skeleton seems to have appeared and another plot is being prepared. But not today. No new frames up, no work apparent on undeveloped plots. I know it's a public holiday. All the plant machinery was, understandably, locked away in the secure pound but there wasn't much of it - a couple of dumpers, a loader and a digger.

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I'll consider myself to be one of your 'junk bond intellects' shall I Dreamon? Funny how brave people are behind a keyboard.

Funny how people feel licensed to post nonsense, guesses and innuendo just because this is the HPC forum!

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A few points;

1 Generally, supply / demand balance in commercial in the UK occupational market is OK. Stresses coming up in secondary retail and City/Canary Wharf offices, for sure, but still not like the early 90's overdevelopment situation.

Still good demand in the west end for offices - in fact rents have only peaked in the last 2-3 months. Purchase prices fell prior to that because of yields softening. Rents won't fall far unless the market becomes distressed and interest rate expectations are unlikely to cause any further softening of yields.

The only problem in the commercial investment property market is finance - i.e. this is none. That said, I personnally have several clients being large roperty companies that are ready to move in with mainly cash purchases as soon as the market slips further. They believe the catalyst for this will be some of the numerous smaller players that are close to defaulting on their banking guarantees. Reason ? same story as residential - irresponsible borrowing and lending now being found out because of higher rates.

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Still good demand in the west end for offices - in fact rents have only peaked in the last 2-3 months. Purchase prices fell prior to that because of yields softening. Rents won't fall far unless the market becomes distressed and interest rate expectations are unlikely to cause any further softening of yields.

The only problem in the commercial investment property market is finance - i.e. this is none. That said, I personnally have several clients being large roperty companies that are ready to move in with mainly cash purchases as soon as the market slips further. They believe the catalyst for this will be some of the numerous smaller players that are close to defaulting on their banking guarantees. Reason ? same story as residential - irresponsible borrowing and lending now being found out because of higher rates.

I completely agree.

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Funny how people feel licensed to post nonsense, guesses and innuendo just because this is the HPC forum!

you certainly know how to make friends and influence people.

Guess youve never erred in your life.

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A few points;

1 Generally, supply / demand balance in commercial in the UK occupational market is OK. Stresses coming up in secondary retail and City/Canary Wharf offices, for sure, but still not like the early 90's overdevelopment situation.

2 UK REITs are simply tax efficient versions of listed property companies, and not generally overleveraged. Note this is different from the USA, where I know some posters on here come from.

3 The property funds which are closed to redemptions are not REITs, as REITs are listed, so anyone can sell at the market price at any time.

4 The commercial property market has come off 10-15%, but I don't know of anyone who is predicting a further 20-30%. I guess the "futures" market referred to above could be share futures, but that reflects many other factors than just the value of property.

5 Finally, commercial property drops quicker than residential because of regular valuations, whereas residential proof is only based on marginal sales.

Still not where I would want to put my money. My employer has recently laid off over 15% of the work force and closed one site thereby vacating a commercial lease with a year to run. I can not think my company are alone in taking such steps.

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There's still the fact that when a business fails it disappears and the premises become empty, whereas people who get into financial difficulties and have to sell still need to live somewhere. A slump in the residential property sector doesn't decrease the number of dwellings needed to accommodate the population by very much. A business slump decreases the number of businesses needing premises.

Edited by Sofa Spud

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Hardly any of us will benefit from a chaotic economic meltdown. We all think property prices are way too high but what is needed is a sustained but not too rapid decrease. That way, although some people will suffer financially their lives won't be holed below the waterline. Only the most foolish risk-takers and gung-ho BTLers deserve to suffer, other people have really just been unlucky in the same way as those who didn't have quite enough to get a foot on the ladder and saw prices rising further out of reach.

so, hang out the pain for as long as possible.

The quicker it happens the quicker its over, the quicker things recover. They tried to hang out the depression. It lasted much longer than it needed to, every dam they put up to ease everything just made it worse.

When they stopped trying to ease the pain, the depression ended in weeks.

Theres a thread on here today with a link to an economics leacture about the bust phase of the cycle. Might be worth a look.

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Still not where I would want to put my money. My employer has recently laid off over 15% of the work force and closed one site thereby vacating a commercial lease with a year to run. I can not think my company are alone in taking such steps.

Don't get me wrong - my post was to correct a few inaccuracies.

I do commercial property debt for a living, and I wouldn't invest now either.

Give it six months to a year, and it might start to look interesting, as the market movement is substantially more rapid than in resi.

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What exactly are you referring to? Do you have any alternative FACTS?

I was reacting to the News of the World style sensationalism evident in the first rush of posts in this thread.

REITs are not some devious new financial instrument designed to encourage leveraged investment speculation in commercial property, in the UK they are just the result of a tax concession.

And what is this 2008 30% drop prediction? Just because business involved in commercial property might see a 30% drop in share value does not equate to a 30% drop in property value. This would be akin to saying pounds notes in the UK became worthless because Northen Rock crashed.

Then take the "cash in your pension" advice thread. Most early posters did not have a clue as to what a pension was or regulations restricting their operation. Transferring the equity portion of a pension fund out of equities just now would be daft unless one believes in a 1920's depression story. A third of my pension fund has been in cash for the past 14 months and I am getting close to shifting that back into UK equities.

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so, hang out the pain for as long as possible.

You can knock a house down in a couple of hours with a bulldozer and end up with a pile of rubble, or you can take it apart brick by brick over a couple of weeks and end up with a whole load of useful salvage material.

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I completely agree.

Ditto. I know some funds in the NW who see this as a buying opportunity. I was having a discussion with one of their Development guys in the pub last night...it was a classic bull/bear exchange....although all I was advising is to sit on those capital reserves and wait a little longer...

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Don't get me wrong - my post was to correct a few inaccuracies.

I do commercial property debt for a living, and I wouldn't invest now either.

Give it six months to a year, and it might start to look interesting, as the market movement is substantially more rapid than in resi.

Again, agreed...doesnt commercial lead resi by 12mths or something???

Which sectors are you seeing strength in commercial...in NW hotels seem to be the done thing...f**k knows why, but the planners keep letting it happen and the money's chasing it...

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Again, agreed...doesnt commercial lead resi by 12mths or something???

Which sectors are you seeing strength in commercial...in NW hotels seem to be the done thing...f**k knows why, but the planners keep letting it happen and the money's chasing it...

No real strength anywhere at the moment. Banks are shut for new lending to all intents and purposes, and equity investors are largely sitting on their hands.

Europe is busier, especially the Nordics, and except Spain.

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RICS paper on Commercial Property derivatives and how it could influence valuations on the ground going forward.

http://www.rics.org/Practiceareas/Property...erivatives.html

I'm not much of a fan of property derivatives.

They do enable people to invest or hedge in general terms, but property is so specific that getting a decent diversified seller of risk with real assets is difficult, and pretty much everyone is a seller or buyer at the same time.

I think valuers have always used their judgement to imply market directions and property derivatives simply collectivise it and turn it into a figure.

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You can knock a house down in a couple of hours with a bulldozer and end up with a pile of rubble, or you can take it apart brick by brick over a couple of weeks and end up with a whole load of useful salvage material.

Unless the house is a modern newbuild luxury executive style shoebox. :lol:

doubt you could salvage much from there.- a wireless doorbell maybe? :angry:

A quick end to fiscal problems is a bit different. With these matters, there is a lot of denial in the destruction process. If you make it quick, action is forced on the participants and they have to act. It gets sorted.

Spread it and they adopt a its going to get better attitude and we'll wait and see what happens. they get anxious, they deny it, they then get fear, they get desparate and finally panic. It all ends in tears, VIs come out with their "green shoots" offering false dawns and hope.

In my view, id rather a short natural correction rather than a lengthened Government adjusted one. The depression ended weeks after the Government stopped messing about with Price controls, protectionism and all the rest. The Market will stabilise in either case.

If you got time Have a look at the lecture on BUST on the "A great lecture" thread on page 1 at the mo. Its long but very interesting and the guy is a great communicator

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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