The Hedge, destroying a once – upon – a – time – investment for the Mum and Dad edge!

The Hedge, destroying a once – upon – a – time – investment for the Mum and Dad edge!

In real estate, when one refers to a hedge, it usually refers to a murraya, viburnum or wisteria which defines boundaries and more often than not is a striking signature to “home sweet home”. The capitulations of the share market have become an unnecessary evil to property markets in 2008 where the actions of some have led to a false economies mentality with some believing that top – end property markets will follow suit. It should be noted that this is not the first time such rumours have been cast at the top – end markets and it won’t be the last either.

The new age of ‘Predatory Stock Acquisitions” which was evidenced last week at www.businessspectator.com.au when the “KGB” AKA, Kohler, Gottliebsen and Bartholomeusz, interviewed Challenger’s Mike Tilley on March 15 who said about this share market process, “ It’s like taking candy from a baby: you borrow stock at a cost of less than 1 basis point per week, start a rumour, cover the position when the price falls, make a profit.” Based on this new share market trend why would anyone invest in the stock market given that these new players stipulate then manipulate stock positioning for their own financial gain.

Today, many share (no pun intended) the opinion that the share market is no longer a level playing field where hedge funds keep selling short. Hedge funds keep reaping financial benefits at the expense of the “mum and dad” investors. As Alan Kohler wrote “Bear Sterns was hit by rumours a week ago: by Sunday JP Morgan was eating it. Hedge funds are now able to cover their Bear Stearns short positions with JP Morgan stock in a ratio of one to 18, which equals about $2 per share, down from $57 a week ago.”

To put this into greater perspective Alan Kohler commented. “Were the rumours about it true? Doesn’t matter – they turned out to be true because by Wednesday and Thursday a run had been sparked and Bear Sterns didn’t have enough cash to meet it.”

Unlike residential property markets, the hedge fund players can’t short sell our property markets, which is generally their next point of call. Simply put, the hedge funds crystallise share market profits into their principal place of residence (a tax free haven) which explains this insatiable desire to acquire prime residential real estate.

Whilst on prime residential real estate, conjecture is that 2008 won’t be anywhere as strong as the 2007 property market. One can only assume then, that last week’s records sales were nothing more than a mirage. Jonathan Chancellor wrote in The Sydney Morning Herald on March 15 2008, “Penthouse breaks record. A record $32.4 million Sydney house one day. Now a record $16 million – plus Sydney penthouse as the prestige market continues to soar.“ It should also be noted that ….

What many forget is that the tightly held mortgage markets bear absolutely no resemblance to the top – end markets. This explains why we remain upbeat about the strength of our markets although we are concerned with agencies who “over–value” to secure the respective properties. When this happens, public perceptions on the property markets often lead to misconceptions about the actual strength of these niche markets. For example Mosman houses experience a 75% trade from existing owners with the other 25% coming from outside the 2088 postcode. I have long argued that if there was no commission payable – real estate agents would get property values 100% correct. This is the greatest problem property markets are currently facing. It is very easy for real estate agents to blame the inconsistencies of financial markets as having an adverse effect on property values. This is highlighted by dramatic and recent reductions in auction clearance rates. Record prices are (very simply) achieved by moving demographic markets up – not down. Our research on Mosman property sales, indicates that the difference between a great real estate negotiator and an average negotiator is generally a 10% difference in price realisation.

Australian Property Monitors’(APM’s) statistics (last week) for Mosman house sales, have been challenged by a subscriber residing in New York. I too have extrapolated these figures and found that many of these sales were actually negotiated in 2007 (exchanged). Collectively we are of the opinion that an exchange (where you actually sign the contract and pay a deposit) constitutes the birth of sale. Not – when a sale actually settles. A sale negotiated in the December quarter of 2007, does not constitute a correct positioning within the March quarter – 2008 reporting. More on that next week.

Have a fantastic and safe Easter. We will be trading on Saturday and all leave is cancelled given that the Mosman property market is on! Cheers ^__^

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