Buy shorting CDOs or other credit derivatives. Goldman Sachs did this during the 2008 crash and made billions. Unless you are a particularly large investor this sort of contract probably isn’t available to you though.
You could probably use interest rate bets on betting exchanges as a proxy too but you might have trouble finding people to take the other side of that bet.
Are any of the large construction companies publicly traded? How often do people finance their home with a loan from a bank? Which banks seem to be pushing loans to the unwashed masses the most? What about the DIY retailers and furniture retailers? (when property crashes, it takes those retailers with it). Short any of these companies.
Having said that, short-selling is (as you well know) extremely risky and very expensive: it requires you to bet on the amount of the drop and set a deadline. Something market-spanning like a property bubble is very very tough to predict (vs. an individual company that you can easily guess will miss their quarterly earnings), and even harder to find the contributing elements. Bubbles are all games of chicken. With property bubbles, you actually have governments and monetary policy and bond markets involved. Good luck.
I’ve always heard that that shorting is the dark side of investing. Are you sure you want to go there? And even though we’ve been rocked by real estate crashes in recent years, property values tend to be one of the safer investments. Short-selling by individuals is usually done with high risk stocks and volatile commodities.
If you want to go though with it though, you’ll need a broker (who will also try to steer you away from shorting). I’d look for an exchange traded fund ETF that is based on UK real estate or a London real estate investment trust like SREI-LN on the London Stock Exchange. Through your broker you would ask to short sell so many shares or a certain value of of shares for SREI-LN. As an individual you’ll either need to have a lot of money in an account with that broker or sign a loan agreement (with terrible interest rates) before they’ll let you short a stock. You may have a limited time (like six or twelve months) and if the stock doesn’t crash during that time period you’ll have to buy back all the shares.
Again very risky. If you’re interested in investing, I’d follow Warren Buffet’s advice and buy a few ETFs and sit it out for twenty years.
Full Disclosure: I’m a science teacher not an investment banker. I own no property, have never been to the UK and have seriously tanked past investments.
our freeholder is making noises about either buying or forcing us out in order to build a giant tower
I’m not sure what this means. Can anyone translate to American?
doesn’t make clear sense in English anyway.
Property in the UK can be characterised as “freehold” where you own the land the house is built on or “leasehold” where you lease it off the freeholder. HTH.
I personally would be very very careful about shorting London property. I’ve known a number of people who’ve sold up and rented, so convinced were they that property was going to bomb in London in the past few years. Some of them have probably lost a large amount of money on that bet and London property seems to be being used as a reserve currency by very rich people.
That said, as a house-owner in London, I’d like to be free of that risk myself because it is looking rather toppy.
www.betfair.com - they match bets rather than taking them themselves. They cover all sorts of areas.
Yesterday’s Evening Standard carried an article about how prime London property is slowing and regional centres are expected to pick up.
Edit: I don’t gamble (much), looked at Betfair - special bets might be one area. Contact them. Otherwise Google house price betting marketplace, something along those lines.
If they sold it while the prices were elevated, and they bought the property back when it was cheaper, then they almost certainly didn’t lose money and probably made a good chunk of change.
They surely could have made MORE by holding onto it longer, but that also means more risk, and people deciding to take that sort of risk is how these bubbles happen in the first place.
The premise of the question is disappointing, essentially: how can I personally cash in.
Simple, sell your houes and rent, wait for price to drop then re buy your house, ofc if its for sale, but for the normal man that is really the only way.
If you own a flat in London, sell it with the stipulation that the new owner will lease it to you for however many years you think it will take the market to crash. Then, you can renegotiate your lease or buy back the place for less.
If you don’t own property in London, find a friend who does and encourage them to do the same thing, although the contract will need to include the stipulation that you either provide them the change in value of their property or take a commission when they buy back their property.
That said, highly inelastic real estate markets such as London are unlikely to decline because they are the complete opposite of subprime. Real estate crashes are usually caused by a recession in the underlying economy and the one-percenters that invest in real estate in London, Manhatten, San Francisco etc. seem to be largely unaffected by recessions, perhaps due to cozy relationships with their governments.
Depends on how much money you have to play with but personally I’d open a leveraged trading account (CMC, IG Index, etc…) and short the equities of listed homebuilders particularly exposed to London.
Unless, of course, you are one of the contributing elements. See Sachs, Goldmann, et al.
Yes well that’s exactly what didn’t happen and why I made the point. They sold it and then property prices went up solidly for the next several years.
That’s the text. The subtext is HAY! BUBBEL!
Eugene Fama would say the property market is working with perfect rationality. Robert Shiller would disagree and claim you can predict when the bubble will pop. They should know as they co-won the Nobel Prize in Economics this year, while holding entirely opposite views.
I don’t think the current bubble is close to popping so there’s the added complication of making a fairly longterm bet. To be honest, the simplest way to do that would be to move out of London, wait for the crash and then put the money you’ve been saving towards a suddenly cheaper London property.
Any type of shorting is going to be a lottery style gamble.
In the UK many private homes are built on leased land. On a “freehold” property you will own the land and structures, on a “leasehold” property you own the structure, but pay a nominal rent to the owner of the land. It is somewhat like a condominium in the USA.
This has a moderate effect on resale value as you near the end of the lease, as there is always the possibility that the land owner might be a jerk about negotiating a renewal. There are lots of protections in law however for the rights of the leaseholder.
Along with an element of anticipatory Schadenfreude, hoping that property prices crash to the extent that his current landlord will fail to profit from forcing him out of his home in the first place. I see absolutely nothing wrong with that.