Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
Will Biden’s Neo-Populist Economic Doctrine Support Gold? - 25th Sep 21
Markets Deflationary Winds Howling - 25th Sep 21
Crude Oil Price Piercing the Sky: Where Will We See the Black Gold by Xmas? - 25th Sep 21
Cryptocurrency policy choices and consequences - 25th Sep 21
The Next Emma Raducanu UK Tennis Star Pleasing the Crowds at Millhouses Park Sheffield - 25th Sep 21
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK Commercial Properties Crash Looms as Property Investment Fund Frozen

Housing-Market / UK Housing Dec 21, 2007 - 02:23 AM GMT

By: Nadeem_Walayat

Housing-Market Best Financial Markets Analysis ArticleBritain's fourth biggest insurer, Friends Provident froze its Property Fund on Thursday, thereby denying over 110,000 investors the ability to liquidate their investments. The property fund has an estimated value of more than £1.2 billion or $2.5 billions. The insurance company stated that investors will not be able to gain access to their funds for a period of six months due to a sharp fall in its cash reserves as investors took fright from the collapsing UK housing market, both residential and commercial.


Over the last 20 years, I have repeatedly warned of the problems faced by unit trust holders in that in times of difficulty they may find themselves locked into depreciating assets without the ability to liquidate investments.

The first time I experienced this was during the 1987 crash, when I did hold unit trusts and the brokers would fail to pick up the phone, this has been reiterated throughout many articles regarding how to invest in funds, and that my preferred route has always been to invest in investment trusts rather than unit trusts.

Back on 22nd August 07, I specifically warned in the article - UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth , The stock market is expected to be volatile since we are moving into a new risk climate. Despite a high probability of further sharp falls, and even a crash, there are plenty of long-term plays out there especially in the big cap oil sector. I would also look at bargain hunting metals and mining on further sharp falls or a crash. Similarly for the utilities sectors such as Water. The best plays are probably via investment trusts, of which there are many. I favor investment trusts over unit trusts as they are traded on the stock exchanges exactly as any stock is. Whereas, as I recall in previous financial crisis you may find the phone off the hook on the other end of the line when you try to call to buy or sell unit trust positions.

The reason for the freeze is clear, in that once the cash reserves have been consumed the funds would be forced to liquidate assets, which means sell properties. Do not imagine for a moment that the problem is restricted to Friends Provident. This applies to ALL commercial property funds that are seeing the smart money leaving the scene before the avalanche of redemptions begins resulting in sector wide freeze of unit trusts.

UK Housing Crash

The UK housing market continues to deteriorate and is expected to result in annualised UK House price inflation going negative for the first time since the early 1990's by April 2008. The buy to let sector rush for the exit to take advantage of the change in UK capital gains tax rules effective 1st April 2008 as well as buy to lets no longer remaining a viable investment in the face of falling house prices.

An additional sign of the housing slump accelerating was illustrated in my recent analysis of the sharp deterioration in the ability of houses to sell at auction, with the number of sales falling from 97% in January 2007 to 71% by November 2007, typical auction house.

The Market Oracle forecast is for a 15% drop in UK House over the next 2 years with London expected to drop by as much as 25%, as of 22nd August 07.

Uk House Price Forecast 2007 to 2009

The UK property market remains at historically high unaffordability levels as illustrated by the Market Oracle UK House Price Affordability Index.

UK House Price Affordability Index

Investors should not delude themselves into thinking that just commercial property unit trusts will be hit, the contagion could spread across the whole unit trust sector if investors realise that when the times come to sell, the won't be able to. The last time we witnessed such panic was just 3 months ago when savers queued outside Northern Rock Bank to withdraw savings.

Unlike savings accounts, I cannot imagine how the FSA and Bank of England could step in to guarantee investors ability to liquidate assets. It is just not possible.

Your 'renting' analyst watching the unfolding UK housing crash from the sidelines and preparing 7 additional 2008 inter-market forecasts in addition to the 3 already produced (UK house prices, inflation and interest rates). Next - UK GDP growth for 2008 and hence recession prospects.

By Nadeem Walayat
Copyright (c) 2005-07
Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Duncan R
21 Dec 07, 16:38
UK House Price Falls

i also c house prices going deep south


Petro
22 Dec 07, 17:28
Freezing of assets

Nadeem, you say the freezing of assets of unit trusts does not apply to investment trusts, can you tell me what about the position of ETF's? Where do they stand? Can they be frozen or are they treated as investment trusts.


Nadeem_Walayat
22 Dec 07, 21:33
ETF's are similar to Investment Trusts

ETF's trade the same as investment trusts and individual stocks, in that an open market is made for their shares and can thus be bought and sold at any time during market hours.

By the way, they 'could' be frozen as any traded stock 'could be', but I cannot recall ever an ETF or investment trust being frozen due to a market panic. Whereas there are a string of precidents of unit trusts and other similar investments being effectively frozen either through announcements or the fund manager not picking up the phone to deal.

The reason is because Unit trusts have to liquidate assets to meet sellers demand if they run out of cash, as is happening with the property unit trusts.

Whilst investment trusts assets are NOT sold to meet seller demands, as the market matches sellers to buyers i.e. the price falls until buyers emerge to buy the stock being sold.

Infact the differences to investment trusts make ETF's even more efficient at pricing, i.e. the mechanisms of share creation and consolidation ensure that the ETF closely matches the index it tracks whereas the investment trusts can trade at discounts and premiums to the underlying assets,


Stuart
03 Jan 08, 07:58
Advice from a property fund manager

Nadeem, do you think an investor has any come-back on poor advice given by a property fund manager? E.g. if in early Q4 he/she was still forecasting positive returns after a 10% YTD fall, yet the fund ended up losing 20% by year-end? Maybe the advice was given to avoid too many redemptions?


Nadeem_Walayat
03 Jan 08, 12:14
Property Fund Manager

I doubt if there is any comeback, as all forecasts would carry a disclaimer.

The only comeback would be if you were mis-sold an investment.


Dave Docker
16 Feb 09, 13:08
Scottish Equitable Property Fund

In September 2006 I was advised to invest in Scottish Equitable Property Fund. I was shown Scottish Equitable Property Fund Performance leaflets. They depicted 'year on year' returns on investment of 18.6% and 17.1%. The suggestion was from my IFA that this was from rental income from Government and Blue Chip companies on long term agreements. It now transpires that the returns were 70% inflated property values. Do you consider that I was mis sold the investment. Regards David


Post Comment

Only logged in users are allowed to post comments. Register/ Log in