Thursday 2 April 2009

It's an Ill Wind That Doesn't Blow a Vulture Some Good

Feeling a bit despondant? No hope of a recovery? Everything going down the toilet? Well, if you're looking for a positive outlook on the current property market you might well take a look at what property funds are doing. What are they doing, you might well ask? Well, they're salivating quite a lot and making movie type evil laugh noises to be honest. They see rich pickings in the property market and they're falling over themselves to pay very little for them. 

A recent Reuters report says it all in its headline 'Debt buyers eye bombed out market'. According to reporters Tom Freke and Daryl Loo: 'Real estate funds are spying rich pickings from carnage in commercial real estate, stockpiling cash to buy discounted loans that may cost banks billions of pounds in the coming years.'

Admittedly it's not great news if you're working in the banking industry, although the chances are that any 'nationally vital' bank will be bailed out by ... well, us really. Isn't it nice to know that all these 'vulture funds' will make lots of money while we get saddled with the black hole of irresponsible bank debt? No? Have you no sense of humour? I guess not. 

Well, the fund managers are happy anyway, at least the ones that didn't buy any property in the last few years are. According to Reuters: "Mortgages supporting high-profile office or shopping mall deals are in dire need of refinancing after a record crash in prices in 2008 that has hit commercial property markets much harder than its residential counterpart."

These mortgages, known as commercial mortgage backed securities (CMBS) are, according to Barclays Capital, responsible for about €77 billion (millions are no good these days, it has to be billions if you want to have any effect). Barclays estimates that some €35 billion of this debt is due for refinancing by 2012, but banks, whether they like it or not, have to reduce their exposure to the property market.

The report claims that average UK commercial real estate prices have fallen by 40 percent since a market peak in mid-2007, this means that many CMBS deals have now breached covenants linked to the value of the property.

The recession is biting hard and payment defaults are now beginning in UK, Spain and France, according to Close Brothers. There are, apparently, not too many in Germany yet, but they are expecting some in the not too distant future. 

So if you think there is no future in the property market you should probably ask yourself why eleven funds are seeking to raise about $6.5 billion to invest in Europe with a staggering $72 billion being sought for the North American market.  

It's all they can do to stop the saliva slobbering from their mouths as they make these statements. 

Another positive is to be found in an article entitled 'House Prices Post First Rise Since 2007'. According to the Nationwide Building Society, UK house prices this March rose for the first time since October 2007. The lender did, however, caution against jumping to conclusions about a housing market rebound. Apparently house prices rose 0.9% in March after a 1.9% drop in February, taking the average price of a house up to £150,946.

So there you go - it's not all doom and gloom out there. 

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