Brexit contagion is spreading. Yes I know the FTSE 100 has more than recovered its losses. But the FTSE 250, which reflects British economic activity much more accurately than the 100, has not and is heading down again right now.
The pound remains seriously devalued.
And this afternoon all the signs of a property crash are developing as insurance companies have had to close withdrawals from their property funds.
This is about the commercial property market. Not the residential.
Further, why have these funds stopped withdrawals? Because they are illiquid.
As I mentioned this morning Standard Life has had to suspend withdrawals from one of its property funds in the wake of the Brexit vote. We’re now seeing the same problem afflict another such fund, this one run by Aviva Investors. The problem here is akin to that problem that fractional reserve banking can fall foul of, liquidity problems rather than solvency ones. Investors can withdraw their money on demand – but the property which the money is invested in is very much more illiquid than that investor demand for cash at times. Thus it is possible that any cash margin gets wiped out, that the fund simply cannot sell properties fast enough to redeem investments.
It’s not even that prices have declined. It’s that investors think they might therefore they are asking for their money back faster than property can be sold.
This entire sector is worth some £30 billion. This is about a liquidity mismatch, not a plunging property market.