WeWork Debris Hits Bystanders: Two More Real-Estate Mutual Funds “Gated,” This Time in Ireland. Fitch Warns of Contagion

“We regard liquidity mismatches as a major structural flaw.”

By Nick Corbishley, for WOLF STREET:

Two Irish commercial real-estate mutual funds, with a combined value of around €1.4 billion, have blocked redemptions after sustaining heavy outflows, leaving thousands of investors twisting in the wind. This has stoked fears that the liquidity issues that have dogged the UK’s mutual fund industry over the past year, beginning with the high profile gating of the £3.7 billion Woodford Equity Income fund (WEI), have now spread to another European economy. According to U.S. ratings agency, Fitch, contagion is now a very real danger.

Both of the gated funds were “open ended,” meaning they offered investors daily liquidity. When large numbers of investors began taking advantage of this facility by taking their money out, the funds had to sell assets in the portfolio to raise enough money to meet the withdrawals. This is not a problem when the assets in question are highly liquid, such as large-cap stocks. But when the assets are commercial real estate that can take weeks or more likely months to sell, there is a mismatch in liquidity between what the fund offers to its investors (daily liquidity) and what the fund holds (largely illiquid assets).

This is a big risk with these types of open-end mutual funds. And that risk could be about to grow, warns Fitch:

We regard liquidity mismatches as a major structural flaw that is likely to become more evident if the European CRE sector, or investor sentiment towards it, weakens. There is also the risk of contagion. If a fund experiences a spate of outflows, investors in other funds invested in similar assets may move fast to redeem their holdings to limit exposure to declining asset values after forced sales. If a fund is gated, the publicity may increase this contagion effect, while also potentially causing wider reputational damage to the investment manager and the sector.

Ireland’s commercial real estate market has bounced back impressively from the last crisis. But concerns have been rising that the boom is running out of steam, partly due to the mammoth troubles of WeWork, which, which after its scuttled IPO and subsequent write-down and bailout by SoftBank, pulled out of two big Dublin property deals in October. Since then, a number of property funds – including funds managed by Irish Life, Zurich Life Assurance and Aviva – have cut the value of their portfolios after being hit by a surge in redemptions.

But even that wasn’t enough. Last week, the Irish Property Fund and Friends First Irish Commercial Property Fund, both owned by the British insurer Aviva, announced they were freezing withdrawals for up to six months after failing to meet investors’ demands for the return of their cash. The funds, whose properties include the Royal Hibernian Way shopping mall in Dublin and the Globe Retail Park in Naas, have already been marked down by 7% and 9.1%, respectively.

Contagion already appears to be spreading across parts of the UK fund industry following the gating last year of WEI and M&G Property Portfolio. Once worth £10 billion, WEI was closed for good in October, leaving more than 300,000 (largely retail) investors shouldering losses of up to 50% of their initial funds. As for M&G Property Portfolio, it closed its doors in December after investors yanked an estimated £900 million from the fund in the first ten months of 2019. The fund remains shut today as it tries to raise cash by selling some of its assets.

Property funds endured the largest and most sustained withdrawals on record in 2019, with total outflows of £2.2 billion — the equivalent of £1 in every £15 under management — according to global fund transactions network Calastone. The intensity of outflows grew over the course of the year, reaching a crescendo in the final quarter when £770 million of funds were withdrawn.

By contrast, UK equity funds saw record inflows in December of almost £2 billion in response to Boris Johnson’s electoral triumph, marking a positive end to a year scarred by the fall of once-legendary stock-picker Neil Woodford. But concerns remain about the pace of recent outflows from Invesco’s UK-focused funds, which were, ironically, managed, with incredible success, by Neil Woodford until 2013, when he left the U.S. firm to set up his own investment company, taking many of his Invesco clients with him.

Over the past three years, the combined value of the three funds has plunged from £16 billion to £8.5 billion. In the final quarter of 2019 the three funds suffered outflows of just over £1 billion — its biggest three-month redemption since September 2014, just after Mark Barnett took over Invesco’s Income and High Income funds from Neil Woodford.

Two of the funds were also hit by Morningstar downgrades over their exposure to smaller and illiquid companies. In another ominous portent, Zurich Insurance in January decided to block new investment into its £215 million ‘mirror’ Invesco Income and High Income funds citing liquidity concerns, just as it did with Woodford’s Equity Income Fund little more than a month before it was gated.

The reverberations could extend beyond the industry: “Banks or other lenders may also be affected if an affected fund uses them for debt financing or liquidity facilities,” Fitch warns. “However, significant contagion to the broader financial system is unlikely given CRE (commercial real estate) funds’ small relative size. CRE funds represent only about 2% of mutual funds globally by assets under management.”

But it’s not just CRE funds that are managed on an open-end basis. So, too, are many equity funds with illiquid assets, such as shares that are not publicly traded or are only thinly traded — which is what Woodford’s fund tripped over — and even some hedge funds. And these funds account for a much larger share of assets under management. And some of those funds, as investors have recently learnt in the most costly of manners, may have less liquid assets than they’re supposed to. By Nick Corbishley, for WOLF STREET.

Why Has UK Auto Manufacturing Collapsed 24% in Three Years? 81% of the vehicles are exported; they can be built anywhere. Honda is leaving. Nissan may be too. Vauxhall may be shuttered. Jaguar Land Rover offshored some production. ReadWhy Has UK Auto Manufacturing Collapsed 24% in Three Years?

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  68 comments for “WeWork Debris Hits Bystanders: Two More Real-Estate Mutual Funds “Gated,” This Time in Ireland. Fitch Warns of Contagion

  1. Unamused says:

    Not to mention the glaring risk/return mismatch. The risk of loss far outweights expected ROI, but that probably goes for just about everything these days.

    • Frederick says:

      Not Silver or gold That’s for sure Overlooked them for some reason?

      • Cas127 says:

        Well, at a minimum, zero yield precious metals do not look so bad, when fiat also yields zero…or less, as in Europe.

        By lowering “riskless” gvt int rates to zero, gvts almost definitionally increase the volatility of all other asset classes.

        • nhz says:

          gold increased 5-6x in value within 20 years, I think the potential downside is huge as well (e.g. central bank selling, governments declaring gold ownership and/or sales illegal etc.). In Europe you can clearly see how the nose is tightening for gold investment, step by step they are eliminating almost all options so Ms. Lagarde can have her Euro and eat it too (all of it).

        • Frederick says:

          Nhz strongly disagree Gold is money and LaGarde will not be able to stop people from desiring it to protect their wealth nor anyone else for that matter Goldis up 5 to 6 times you wrote No the fiat currencies have lost that much purchasing power from reckless central bank behavior

        • nhz says:

          @Frederick:
          I agree that it is really fiat currencies that are going down, but I still think the risk of outlawing gold trading is VERY real in Europe, and in that case I doubt gold would go up relative to fiat. Just look at the many steps EU authorities van taken over the last decade to prevent people from protecting their savings with gold or gold stocks; they clearly want people to spend/invest in other assets instead.

      • DawnsEarlyLight says:

        Would I take an ounce of gold for my last pack of toilet paper, in a time of need? Doubt it.

        I bought a substantial amount of gold at $272 an ounce. Based on the past inflation, that should be a little over $400 dollars an ounce now. I doubt I would touch it at the current prices.

    • nhz says:

      Yes, like the most popular investment in Netherlands these days, real estate: net ROI 2-3% (before taxes) if you are lucky, potential downside at least 50-75% based on cash value of investment. Many “investors” aren’t really investing and using huge leverage, lending the whole sum at close to zero rates thanks to the ECB. Of course the ECB now has the obligation to make sure that RE keeps going up in value with double-digit percentage every year, otherwise all hell would brake loose.

      Many youngsters are “saving” for their first home by speculating in these REITs that promise 5-10% returns, which obviously sounds real taste compared to the 0.01% interest rate on savings accounts (if you are lucky, people with more money are now starting to pay 0.5% over here in addition to the year inflation loss and wealth tax). The REITs play their part by extorting renters with rents that increase often much faster than inflation, while rents are already the highest they have ever been relative to income.

      Can’t wait for this contagion to skip the Channel, bring it on. Speculators need to learn a lessing, even better if the contagion can also bring down the ECB crime syndicate.

  2. 2banana says:

    Tipping point?

    I guess it all depends on the bailout.

    “But concerns have been rising that the boom is running out of steam, partly due to the mammoth troubles of WeWork, which, which after its scuttled IPO and subsequent write-down and bailout by SoftBank, pulled out of two big Dublin property deals in October. Since then, a number of property funds – including funds managed by Irish Life, Zurich Life Assurance and Aviva – have cut the value of their portfolios after being hit by a surge in redemptions.”

    • MC01 says:

      WeWork has been having serious troubles finding somebody to bail them out. Japan’s three largest financial institutions, Mitsubishi Bank, Sumitomo Bank and Mizuho Financial Group, have all given the office-renting company the cold shoulder, no doubt after consultations with the Japanese government which is well known for keeping veritable zombies like Toshiba afloat. That tells you all you need to know. Goldman-Sachs has provided a $1.25 billion credit line, but if I remember correctly it’s not backed by WeWork assets but by SoftBank ones.
      There’s no bailout coming for WeWork: the only hope is to get rid of it one way or the other, “kegerators” and all.

  3. timbers says:

    Well, now we KNOW the reason why assets are over valued. The Fed just told us: it’s the Pandemic’s fault. So there’s nothing to see here, the Fed has figured it all out and will surely be taking corrective action…like more rate cuts & QE5 or whatever. We can sleep better now.

  4. Satya Mardelli says:

    How does one short this liquidity mismatch? Any European ETFs?

    • WES says:

      Satya:. Good question! But doubt there is an easy way to do this!

      Seems like trying to build a bridge between the unreal world and the real world!

      I doubt our central bankers would even allow you to create such a financial vehicle to do that!

      Physical gold is the only thing that comes to mind but then can you stay solvent long enough to benefit since gold is heavily manipulated by central banker’s.

  5. char says:

    Dublin real estate. Shouldn’t that be a great investment because of Brexit. Or is it that they have invested heavily in B&M retail real estate and not in offices

    • Faifo says:

      There is a general election this weekend in Ireland. If the left-wing Sinn Fein party do as well as they have polled, expect further instability in the Dublin real estate sector.

      • char says:

        That is only a problem for residential real estate. But a Boom for commercial. Lower rents leads to lower wages leads to more business

        • nhz says:

          left-wing politics might also scare away some of the biggest businesses in Ireland, especially now that EEC is starting to fight artificial low tax rates for Irish companies.

        • char says:

          In what way will big business be scared away by governments building rentals? It is not as if that will increase lending costs of government debt

          Outside rental companies

        • nhz says:

          2dhar:
          not scared by building rentals, but by “socialist” changes in tax policies and certain other business conditions.

        • char says:

          They need to raise corporate tax rates. But that will be done irrespective of who wins.

          State building rentals is not something that costs money directly as rent will pay off the increased rent. There are second order effects in lower increases in the price of homes but those increases are not increasing “well being” but are just inflation which is bad for the economy as a whole..

      • Faifo says:

        The well-off has begun already. Shares in Irish REITs and construction are plummeting.

  6. Bill from Australia says:

    Personally my illquidity matches my incontinence, I am a happy man.

  7. David Hall says:

    Auto manufacturing has been moving to nations where labor is cheaper. Uber and online retail may be changing car ownership statistics. I drove less as I did not need to go to a big city to look for specialty parts,

    Am not sure what is happening in Europe with real estate investing. Heard Germany reported some disappointing economic news.

    US real estate has been rising nationwide with some local area downturns. A house in the DC area my parents bought in 1970 for about $30k has an estimated value of over $375K. They moved into long term care that costs much more than before as well.

    • Frederick says:

      Gold closed out 1970 at 38.90 and is now 1570 so you do the math Beat the appreciation of your parents house by four fold

      • WES says:

        Frederick:. Yes, as long as you “only” bought physical gold!

        However, if you bought gold stocks, you got wiped out decades ago!

        I own both!

        P.S. I come from a mining family! Father was mining engineer! I have worked in mines all over the world!

      • Javert Chip says:

        Frederick

        NicInteresting cherry picking of dates.
        @
        How about these gold “cherries”:

        Aug 2011 gold @ $1955
        Feb 2020 gold @$1565
        Doing the math & ignoring inflation, Gold is down 20% over the last 9 years (and has been down significantly more for most of the period)

        • char says:

          Gold had a peak in the early eighties. So use 1980 numbers instead of 1970. Gold does not keep up with inflation

        • Javert Chip says:

          Char

          Obviously, I’m not a strong believer in gold. However, my admittedly poorly made point was cherry-picking start-stop dates allow you to tell absolutely any story you want.

        • nhz says:

          Even more interesting in this case is the price of homes relative to physical gold; don’t have a chart readily available but while relatively stable for centuries it has been a real rollercoaster in the last three decades (for my country, probably for others as well). From about 1990 to 2000 real estate performed many times better than gold, from 2000 to 2010 gold performed much better than real estate and from 2010 to now RE did much better again (depending on RE location and kind of property).

          Timing is everything and unfortunately timing the market is next to impossible.

        • Frederick says:

          Talk about cherry picking dates Gold was 36 dollars in 1960 and up 4500 percent in 60 years so you tell me Is it keeping up with inflation?

        • Frederick says:

          Javert Chip Do you work for the FED or the ECB?You obviously have no clue about gold or inflation of fiat currencies

        • char says:

          @nhz

          Guilder was coupled to gold until the war or so

          @Frederick

          You get inflation if you get a shrinking population (This is expected to happen with the World outside Africa around 2050) and the same amount of gold, or even more if cheap electricity during high supply periods is used to extract gold from the sea.

  8. WES says:

    After reading this, I have to remind myself that these are just one of the many the symptoms of central banker’s “free money” policies.

    Since the first step down this path, central banker’s only choice is to constantly open the spigot ever wider!

    Even a pause in liquidity is more than the financial system can handle!

    Will the loss of trust, due to the spreading coronavirus, finally catch the central banker’s pushing-on-a-string?

  9. “Ireland’s commercial real estate market has bounced back impressively from the last crisis.”

    That’s a real polite way of saying they’re in another bubble.

    • Thomas Roberts says:

      Ireland is going to inherit alot of money and good paying jobs from England because of Brexit. Many corporate offices and financial institutions are going to relocate to Dublin. Ireland could easily be worth that price.

      • MC01 says:

        I cannot speak for other sectors but Ireland, once the worldwide leader in aircraft leasing and fleet management, has recently been taken a beating by other competitors.
        Even Ryanair, whose top management echelons come almost wholesale from Guiness Peat Aviation (the defunct leasing company that started it all), has started to move operations to Poland and especially Malta. If you keep an eye on the white/blue aircraft parked on the apron you’ll see that now many (65 at last count) are registered 9H instead of EI and carry a small sticker “Operated by Air Malta”. The Devil is in the details, or so they say. ;-)

        While Ireland has long been a corporate haven, Malta has introduced some crazy benefits such as impossibly high tax returns which will often lower the corporate tax rate to below 5% and crazy accelerated depreciation periods to claim deductions (as little as four years on aircraft interiors and six years on engines).
        Since Malta is a member of the EU and the EASA your home government can just float and sputter.

      • Faifo says:

        Not yet. The so-called Brexit bounce has failed to materialize. Yes Google and other tech firms have offices in Ireland but, a lot of luxury apartments remain vacant in Dublin. A recent survey shows rents there are as high as San Fran.

        • Thomas Roberts says:

          Nobody knew if UK would actually leave EU until it actually did less than 2 weeks ago. It will take time for alot of relocations to happen.

          Ireland is the smallest “population after Baltic states” fully developed low tax real country in the EU. Unlike Lichtenstein and others if you move your headquarters there and need actual employees to do work that doesn’t involve just filling paperwork. Ireland is a good choice.

          A big thing as well is that, alot of finance work is being automated. Right now you might need 8 floors to run your fiance company in London, soon you might only need 2 floors in Dublin.

      • fajensen says:

        I don’t really think so.

        First, After Brexit anyone thinking of relocating will relocate to places where there is a maximum of 2 borders with water!

        Second, a lot of business that was marginal before will be cashing in their chips or simply going bankrupt over Brexit.

        I think the viable stuff will go the Netherlands, France and Belgium. Lots of “operations” will go to Eastern Europe.

  10. Javert Chip says:

    I’m retired from theAmerican finance industry, but I’m stunned to learn (thru Wolf Street) the kind of illiquid “stuff’ that Europeans casually carry in open-ended funds.

    WeWork always was and still is nothing more than liquid radioactive waste. As far as I’m concerned, people who invest in that crap deserve what the get. To the extent EU financial institutions and regulators allow this manifest malpractice, their not very astute taxpayers will probably end up footing some of the bill.

    To be clear, I have absolutely no problem allowing rich people, or stupid people, or stupid rich people to invest in high-risk crap like WeWork (or Tesla) However, given what the EU has been thru in the early 2000s, governments have a moral duty to fence this garbage off to protect taxpayers and (especially) financial institution who have taxpayer safety-nets.

    This applies to the USA as well.

    • MC01 says:

      WeWork is nothing. The real problem is commercial real estate (CRE) as a whole: not only valuations are sky high, but we’ve built so much of it outside the poshest areas we are having serious troubles renting it out.
      Just to give an example even at the epicenter of the German real estate bubble, Munich, Blackrock has been trying to get rid of an office building in Ober-Sendling, not far from the old Siemens works. While valuations are sky-high (shades of 80’s Tokyo and 90’s Bangkok) a lot of developments have come online over the past year, including the maxi-projects near the Hirschgarten, meaning rents are not keeping up because there’s a lot of competition to fill office space. Yield have been squeezed hard and keep on sinking lower: in 2018 you could still get 4/4.5% outside the most bubbly areas but in 2019 a ton of developments authorized in 2015/6 came online and even in towns like Memmingen yields have dropped to around or even below 3%. Pension and family funds, traditionally heavily invested in CRE, are crying uncle and are piling into equities. That’s why this time it’s different.

      • nhz says:

        the real problem is commercial RE AND speculation in private homes. And the Dutch government (and probably many other EU governments) do everything they can to have their clueless citizens invest all their money in real estate, by scaring them with wealth taxes (that often don’t apply to RE), NIRP policy for savers and other mind tricks.

        In Netherlands over 90% of recent mortgages carry a free government-provided put option (NHG). You can never lose money on a Dutch home! No need to wonder who will pay if the bubble pops, it’s the Dutch taxpayers and the many small housing speculators are counting on the government to bail them out at the same time (many of them aren’t paying any taxes because RE gains and income are untaxed, who cares that taxpayers get the bill for the mess that other people made?). Gonna be interesting times …

        • MC01 says:

          I probably shouldn’t be saying this so loud, but since this is a website about “stories behind business, finance and money” I’ll just keep my tone of voice low: if you live in an European country and pay full tax rate (either as a company or an individual), change your accountant right now because he’s not worth the paper his degree is written on. Not only your country of residence has 100% legal ways for you to pay less taxes but always remember incorporation in a different country is not merely legal but effectively encouraged by EU rules.
          Speaking of which your country has some very friendly incorporation laws: as the sales pitch goes “A Dutch BV is easy to form, easy to control and easy to close down”. And comes with some nice tax benefits and a residence permit (“green card”) if you are an extra-EU citizen I may add.

          To get back to the issue of real estate, commercial is now at tipping point: the mismatch between sky high valuations and crummy rents due to oversupply is starting to bite and will become worse as the projects greenlighted and started in 2017-8 will be completed: the new supply we are seeing right now is just the first wave. While REIT are important players in the game, the ranks and files here are composed of pension and family funds, wealth (mis)management firms and similar dumb money/poor bloody infantry outfits, who have all doubled down on CRE to make up for the fixed yield they cannot get anymore in the security market.
          Residential is another matter because it’s simply too politically sensitive, but the mismatch in countries like Greece, Italy and Spain (declining sales, ballooning stocks and increasing prices) will most likely creep north: plainly put population growth in Europe is not enough to cope all that new supply, especially considering all this supply is of “high end price/low end quality” type: the typical horrible cube painted dirty gray with a flat roof in areas known for their heavy rainfall, a”garden” that looks like a Flanders battlefield c.1917, cheap wire fencing and a price tag that’s sure to cause some serious heart problems.

          As an aside allow me to say that I feel like I am the only one appreciating the irony about all these folks lamenting the destruction of the rainforest in Mexico or Congo while their own backyard is being turned into a sea of cheap concrete.

        • nhz says:

          @MC01:

          I have several Dutch BV’s and planning to get rid of them; one is from the old times when such a BV was still difficult and expensive to form. Getting rid of the old BV’s isn’t easy either ;(

          Main tax issue for Dutch residents is that Netherlands is a tax heaven only if you have high income AND high mortgage debt or other deductions, or qualify for generous subsidies and benefits (child support, disability benefits, agricultural subsidies etc. etc.). If you have some wealth and no current income like me this is a really bad country, unless you are REAL wealthy (over 20M euro special conditions apply, last time I checked). While moving to another EU country is easy in theory, most EU countries are less easy than Netherlands for new arrivals and do not provide any benefits for the first 5 years or so (plus your future Dutch old age allowance will get cut). I haven’t yet heard a good option for my situation despite consulting with several people who should know.

          The commercial RE oversupply is quickly dealt with in Netherlands by converting commercial space to private residences (often with generous government subsidies for larger offices). Probably more easy here than in most other countries because much of the office space is relatively close to the cities. The pressure on private home prices by declining population is dealt with by limiting new building and making new homes even more expensive by increasing land prices (which are 95% controlled by local politics) plus importing more migrants who all get free homes. In my part of the country without the migrants there would have been a significant decline in population over the last ten years.

          Agree about the hypocritical attitude regarding rain forest destruction and local building. In Netherlands new development (including new home building) is now seriously threatened due to too many years of rampant environmental destruction and surging CO2 and Nitrogen (Nox, NH4 etc.) emissions, with livestock farming one of the main culprits. Interestingly most of these problems can be dealt with in one blow by converting some of the current land for livestock farming to new nature and some space for building new homes. Current land prices for building homes are over 500x higher than the economic value for farmers which is ridiculous, just 100x would make homes affordable again. Eliminating half of the very destructive livestock farming would allow more nature (including food forests etc.) to capture CO2 and Nx and restore some balance in nature. If the new homes are also low-energy it looks like a win-win to me, except for the politicians and their ilk who will have more difficulty extorting the citizens through sky-high land and home prices.

        • char says:

          NHG only goes to house valued up to 310 000. A majority of Dutch non rental homes is below that but it is a small majority. It is also a guaranty to the mortgage lender that the loan will be paid in full. But it will stay a full recourse loan with only some mitigating circumstances (They check after death, unemployment, divorce if you still can pay the mortgage and if not and you sell the house for less than the mortgage they will(can) pay off what is left over) Divorce is of those circumstance only one that i think can be used for cheating.

          @nhz, according to NHG more than 50% of Dutch mortgages are backed by NHG but that is not 90%. Some calculations shows that is less than a third of outstanding home mortgage.

          Dutch state may bail out owner occupier though with the groene kloder the state exhibits at the moment i would not be so sure but rent speculators are not the most popular or a big party on the housing market so i seriously doubt that it is a smart investment.

        • char says:

          90% is probably the number of people who take a NHG mortgage who comply to the terms. AKA owner/occupier who buy a relative cheap home who can pay the mortgage without to much trouble.

        • char says:

          @MC01

          Does not every nation “nudge” their people into behavior that the state wants to see through the tax code. But are you sure that a BV gives you right to a “green card”. That sounds more Maltese. (google says you have to invest more than a million in a Dutch BV)

          Commercial real estate is also retail and retail is dead. Work from home kills office demand and to much has been build. Distribution is going through a change due to internet and industry is going to experience a very big change because of CO2. CRE is not bad but you have to be in the right place and what that will be is not yet clear.

          Residential is rentals for a non-local. In the Netherlands large scale rentals are mostly in the hand of non profit woningbouwcoperaties. It depends on state policy how that goes. Small scale rentals are not a big part of the Dutch rental market so policy can go very political and just follows the owner/occupier market for the value of the underling property. It is also to much influenced by washing drugs money, tax code and the fact that it is not a normal thing to invest in for small time-investors so the state can fuck them over without a lot of push back.
          In short i think it is very unwise to invest in Dutch residential real estate if you don’t plan to live in it. Especially if you want to invest millions or more in it.

        • nhz says:

          @char:
          “over 90%” is the percentage of recent mortgages with NHG, from after the Financial Crisis or so. NHG was less popular longer ago because conditions were considered less attractive.

          I think you should read up on how easy it is to piggyback mortgages under NHG or for cheating on the “forced to sell” conditions. I know some examples of people who had NHG on the top 300K part of their > 1 million euro mortgage around 2009 (don’t know if that is still possible).

          After 2009 many “owners” claimed they were divorcing only to unexpectedly fall in love again a year later when the NHG had covered their debt. If you have a 100% mortgage and no savings, there is nothing to collect and the remaining debt is erased. After three years, you can get a full mortgage again without any strings attached. Same story for unemployment, if it helps you get out from under a 300K mortgage, it can be attractive to fight with your employer ;( And who knows, when you are happy and debt free they might find they want you back soon after.

          NHG has been slowly updating their small print in the last 2-3 years but many people count on still being able to easily get out from under their obligations.

          The trouble with the residential rental market is that the housing corporations exclude a large part of the population nowadays. It’s basically only for people with low income and very little savings. Even if you qualify in many areas the waiting lists are more than 10 years nowadays and they are only getting longer – so great for those who are “IN”, they will probably stay there forever and enjoy the low rents. People with normal income or more than 5/30K savings are forced to buy (but many of them cannot afford the mortgage for even the cheapest homes) or rent in the free market, which is a total mess and extremely expensive in most parts of the country.

          I agree that Dutch residential RE is risky if you don’t plan to live in it, but that’s a minority opinion and until now the speculators have been richly rewarded. Most sales above the 300K limit in my area are to speculators nowadays, not people who plan to live there. And if you plan to live there, you better have a good plan because the market is a total mess and values can go down a lot – which can lead to big trouble even if your own financials are solid.

        • char says:

          De groene kolder makes any house build before 2018 way to expensive to heat without serious investments in isolation etc. This is not yet felt because prices haven’t risen yet but they will have been in ten years time. Also house prices are coupled to income and at the moment, and for the last two decades, they have been expensive relative to income. But i don’t expect income to rise greatly and house prices could, and probably will become relatively cheaper compared to wages

    • Greg Hamilton says:

      Javert,
      I am taken by your phrase, “governments have a moral duty to fence this garbage off to protect the taxpayers…” I am speechless. I think that is would we would all like governments to do however…

  11. andy says:

    WeWork is probably the tip of the iceberg of the CRE sector.

    Because WeWork has $49bn of long term leases it is unlikely to meet, it may cause a hole in the CRE sector where it previously provided a pillar.

    Look out below.

  12. Chris P says:

    Wolf
    Just wanted to say thanks for taking the time and research it takes to put together articles like this. Many thanks that there are still a few places to find real financial articles.
    Chris

  13. CreditGB says:

    Leasing empty office space, renovating it, providing “freebies”, all to transient leasees, didn’t work out too well? Huh, imagine that.

    As a manager of a corporate finance department, a proposal anything like this would have been laughed out of the meeting room. And now there are big tears because it all fell apart?

    A ship, with its bottom torn out will always sink regardless of the pumps brought to pump it out. And, it takes the pumps down with it.

    The only benefit of WeWork is the massive spending party of investor money. It must have been one hell of a wild ride for the short time it lasted.

  14. Hunble Pie says:

    Whatever happened to “borrow short, lend long” as a simple strategy for avoiding the liquidity squeeze?

    And in a similar vein, debt is the source of all our troubles in real estate. If you could not borrow money to buy (or build) a house then:

    a) prices would reflect how much people had saved–ie, a fraction of where home prices are today.

    b) home prices would be hugely less influenced by the self-proclaimed god’s at the fed who control interest rates and the boom and bust cycles in real estate.

    As we know if interest rate were to rise 4 percentage points a huge percentage of homeowners would find themselves unable to cover their mortgage payments.

    I know many canadians would be shocked to discover piles of debt is not the height of intelligence–despite it being so for the past 20 years. hence their obscene real estate prices.

    On the other hand, if you own your own home (as most do here in mexico) you are pretty secure in your castle. taxes are low, tortillas cheap. your casa is effectively your savings account so it just grows year by year as you save more cash and build a little more castle.

    • nhz says:

      The conditions vary strongly but in much of the developed world the private RE market has gone totally crazy thanks to massive central bank interventions.

      In my country interest rates are rock bottom (like 1.0% for 10y fixed, 1.5% for 39y fixed) and of course prices are sky-high. Nobody worries about potential interest rate increases. Over 90% of mortgages are no-cash-down and most debtors only start to slowly pay off the mortgage amount after 10 years or so. And because of this Netherlands is number two worldwide in private debt (after Denmark). The real danger is when home prices start going down and the banks could potentially ask for a significant downpayment (which many don’t have), charge a higher rate or terminate the contract because owners are too far under water. In the Financial Crisis this didn’t happen due to political intervention, it remains to be seen what happens next time. Clearly current buyers are all counting on home prices rising forever like they have done for the last 30 years (+8-10% yoy, on average). It’s easy money and if you can get a very cheap 30-y mortgage when over 60 years old, why worry?

      Somebody is going to get crushed by all this madness and my guess is it will be savers and taxpayers, not the ones who are responsible :(

      • Unamused says:

        Agree about the hypocritical attitude regarding rain forest destruction and local building.

        Once the rain forests are gone they will no longer be a problem for you. You’ve already written them off.

        Somebody is going to get crushed by all this madness and my guess is it will be savers and taxpayers, not the ones who are responsible

        You don’t like taxing those responsible and you don’t like regulating their activities. People approve of their predations through their political choices, and apparently it wasn’t much of a trick to co-opt the prey to get them to support their predators. Any plan you come up with to protect the general population from your masters will be twisted into making you look like the bad guy.

        You can always blame the victims. That’s what they do. It usually works.

        • sierra7 says:

          Unamused:
          “People approve of their predations through their political choices,….”
          Really? What “choices” between yada-yada-yada and yooda, yooda, yooda! LOL!

      • char says:

        To get mortgage tax deduction you need to repay the debt within 30 years and be a amortization mortgage or better with respect to repayment of the loan so new interest only mortgages are rare in the Netherlands. Also the state is squeezing mortgage tax deduction so i don’t think it will be that problematic in the future.

        • nhz says:

          @char:
          In the first 10 years or these 30y mortgages very little of the loan is repaid, most borrowers only start paying back much later. And interest-only mortgages are strongly on the rise again due to very low rates: you lose the mortgage tax deduction but the average monthly payment can be lower because nothing is repaid, and there are less rules for the borrower.

          how-much-a-month is all that counts, future risk in the housing market is considered non-existent because of ever rising prices.

  15. IslandTeal says:

    Great comments re CRE and all of its influences. Supprised that a TSLA deal has not been floated as a solution for what ailes Ireland….. LOL

    • Faifo says:

      Another American company tried to build cars in Ireland before. That didn’t work out too well…

      • char says:

        That was Northern Ireland and Ireland is the wrong place to make cars. It would be a great place for batteries as energy costs are much more important and wages a lot less

  16. P says:

    After the massive rally in Sprint stock 2/10 & 2/11 Softbank recoup all their wework investment losses and they are now profitable.
    Wow wow wow

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