Hedge Funds Bet on the Downturn in the London Housing Market

Investors have tipped their hand in what may indicate a sea change for the London housing market. For the first time in several years, hedge funds have taken out short positions against companies important to the capital’s real estate markets, such as Savills, Foxtons, Berkeley Group and Zoopla.

Savills was sold short by Arrowgrass and Brookfield Asset Management. Numeric and Altair Investment Management took a short position on Foxtons. Zoopla has been sold short by Ennsmore Fund Management and GLG Partners. Savills and Foxtons are both estate agents, Berkeley Group is a residential construction company and Zoopla is an online high end property portal. After going public in 2013, the rapidly expanding luxury real estate company Foxtons issued a profit warning in late 2014 plus showed poor performance in sales, off by 25%, the final quarter of that year.

Zoopla owns PrimeLocation.com, a luxury home search site for the United Kingdom. London represents a third of their income. It is the most prominent of such sites for the British market, but it is seeing competition from the brand new real estate portal OntheMarket.com, which was launched in January 2015 and paints itself as a state-of-the-art, user-friendly service that lacks ads and other distractions. Zoopla has not seen this much short selling of its stock since June 2014.

The city has a glut of high end housing due to construction companies trying to jump on foreign demand for prime real estate in this cosmopolitan city. According to the Office for National Statistics, over the course of the previous five years, house prices rose by 50% in the capital. The last two years were particularly good. Recently, talk of a mansion tax, combined with a crackdown on investors from abroad, undermined confidence in the market and stirred up turbulence.

As early as last year, Berkeley Group characterized the recent downturn as a return to normal market conditions. The company is the largest builder of housing in London. It markets its high end British residential real estate to both local and foreign buyers. It is especially well known for its luxury flats. In related news, the high end estate agent Chestertons, which has a sleek online portal, canceled its plans to sell the business. There have reportedly been several offers, but the current plan is to work on growing the business. This can be viewed as another sign of the general lack of confidence in the London real estate market.

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One response to “Hedge Funds Bet on the Downturn in the London Housing Market

  1. Pingback: Why is London appealing for financial professionals? | Alpha Banker·

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