Shorting The London Property Market

“Hedge Funds Short Zoopla, Savills and Berkeley Homes” scream the headlines.

The clever money is placing bets against the London property market as prices have continued to fall. Even the mighty juggernaut that is Foxtons has been affected. So this is further evidence that the property market is going to crash apparently.

I tried shorting Savills a few years ago. It was disappointingly unsuccessful. Admittedly I am not a “rocket scientist”, a point made abundantly clear at a school reunion where one of my contemporaries, who is a mathematical genius, wrote a 7 figure cheque to the school foundation. I knew I should have spent less time on the football pitch…

Anyway the point I am making is that shorting the London property market is probably not a play on a long term crash but on the current uncertainty. Prices are falling as they often do before an election and especially so in London.

Historically transaction numbers drop 30% in London in the run up to an election. Add in the surprise SDLT announcement in December and there is even more uncertainty.

And then there is the danger lurking within the depths of Mordor. No not Orcs, mansion tax – pay attention at the back of the class and stop making jokes about poor Miliband!

If Labour do win the election then the slow fall in prices is likely to accelerate temporarily until they announce the actual plans for a Mansion Tax. I think these will be dramatically watered down just as Syriza have suddenly pulled back from their more extreme promises. Then the market is likely to start climbing again.

If the Conservatives win, you can be pretty certain of a short squeeze as the market jumps higher once the uncertainty has dissipated.

Those calling for a market crash are premature in my opinion. This is likely to be a temporary wobble unless of course one of those pesky black swans decides to make an appearance.

Best regards,

 

Jeremy