Thursday, August 7, 2014

Hot money to come from ECB carry trade from negative European rates into London property

Germany close to recession as ECB admits recovery is weak

German bonds yields plunged to a historic low and two-year rates briefly fell below zero on Thursday on fears of widening recession in the eurozone, and a flight to safety as Russian troops massed on the Ukrainian border.

Posted by libertas @ 11:20 PM (3743 views)
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15 thoughts on “Hot money to come from ECB carry trade from negative European rates into London property

  • This is Japan all over again. Draghi can inject as much cash as he wants, but it will be borrowed in Europe to buy US, UK and emerging market equities and property. London will have the huge brunt on the property front because Europeans can live in London and earn in London also.

    Of course, Draghi needs to realise that taxes have to be cut, regulations have to be slashed. That will bring them out, not free money, which like free sex, leads to societal breakdown.

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  • sibley's b'stard child says:

    Presumably you prefer to pay for yours then?

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  • Fansaty!

    The current New Zealand interest rate (base rate) is 3.5%, why has all the hot money not flowed to there?

    London property is a speculative punt of capital appreciation backed by greed.

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  • sib’s (Thursday, August 7, 2014 11:52PM) lol

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  • Capital hasn’t flocked to New Zealand for the same reason that it has not flocked to the Outer Hebredes and West Wales, because F’all goes on there and it has a tiny population with minimal access to markets.

    Parisians on the other hand, if ECB drops rate to negative, can take out a very cheap loan in Euros and buy a house in London with an appreciating pound and they can live in the house and the sale of it is tax free plus they avoid expensive French taxes. These are completely different scenarios, there are no capital controls between London and Europe and I assure you, carry trades can and do exist.

    When Carney talks bad about a strong pound, he is speaking out against a carry trade into Sterling.

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  • @Libby, “take out a very cheap loan in Euros and buy a house in London with an appreciating pound” – That is speculative gambling.

    Why not at a click of a button place that cheap loan into a savings account in NZ or even ZOPA if you like GDP.

    Importantly the yield of both of those investments is much, much higher than London property and they don’t have any running costs or expenses unlike London property (Insurance, letting agent fees, refurb. costs, service charges).
    Actually thinking about it with with most of London yielding under 3%, you would be bonkers to buy anywhere in London as an investment, unless you were gambling on capital appreciation. If you were gambling on appreciation the you would think that either the cost of borrowing will go lower or wages will increase, but then since there are so few people buying with wages then that doesn’t make sense either.

    17th July 2014: http://www.savills.co.uk/research_articles/141285/177774-0
    “In PCL gross income yields currently average 2.9% with investors most interested in capital value growth and a secure store of wealth. However, within PCL gross yields vary and tend to be higher for property worth less than £2m. Our analysis suggests that they rarely exceed 4.0%.”

    You see, you can make more in a savings account than London property. Don’t forget that 2.9% yield above is GROSS, so the real figure could be nearer to 1.5% to 2% which when you take into account borrowing costs would be a loss maker. This is the reason for the recent decline in London property prices, they have simply peaked out and are over priced.

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  • Pro housing nonsense from the resident VI.

    Funny how every economic event is likely to be positing for UK housing.

    Libby, give it a rest.

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  • What happened to my Wilson post 🙂

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  • Khards – you know who obviously didn’t like it !

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  • Khards, yes, carry trades are a dangerous gamble, but that is the result of government manipulation of capital markets and it is the fallout from governments allowing the fraudulent treatment of derivatives as assets during the 1980’s deregulation.

    The big capital flows will be Institutional. Commercial property funds in particular that invest in commercial real estate and residential lettings portfolios. Pension and insurance funds will all want a piece of the pie, shifting their real estate portfolios from France to UK. Do not underestimate wealthy Europeans domiciling in Britain and moving cash from Euros to Sterling in the form of bricks and mortar also. Much of the Euro issue was people borrowing in Swiss currency and Euros, buying property in Eastern Europe, but people never learn.

    Meanwhile, to protect Sterling from appreciation, BOE will not raise rates the way they should, stoking a property boom that will test the BOE’s new restrictions on mortgages, but those restrictions do not relate to BTL, and so that will not stop a bubble, but shift ownership from owner occupier to BTL and institutional ownership, which is a tragedy in the making.

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  • Khards, where I have purchased in eastern Enfield, mortgages cost about £1000 a month but rents go for about £1500 for a 3 bed house. Yields are close to 50% on a repayment mortgage where half of the income pays off the principal. This is why the big shift now in the hiatus is folk shifting from overpriced areas to those that have previously been overlooked.

    People buy prime property for other reasons.

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  • You have been DUPED about the property market. Arguments against investing fade away when you compare it against renting. When half my mortgage payments repay the principal and when my mortgage is much cheaper than renting, property prices CAN FALL about 3% EVERY YEAR and I am still better off buying, but that will not happen. Prices will rise on net over the next 25 years.

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  • is it just me or are posts vanishing ?

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  • @Mark – Just the ones about the fat man ( think?)

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  • bidin'matime says:

    Post vanishing? Isn’t that only supposed to happen if they breach site rules? Who is the fat man we’re not supposed to mention? If there is manipulation of the site going on, then you might as well read the Daily Express…

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