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How to profit from falling property prices – MoneyWeek

How to profit from falling property prices – MoneyWeek

Goodrentalpropertyisplentiful,thankstothearmyofbuy-to-letlandlordsthathassprungupoverthelastdecade。

AndaccordingtoThisismoney。

co。

uk,itisnowalsofarcheapertorentthanowninmanypartsofBritain。

Butthetime,hassleandexpenseofsellingup,movinghome,andthenbuyingbackintothemarket,meanthisisonlyarealisticoptionforthosewhowereplanningtomoveanyway。

Andofcourse,it’srisky–anyonewhosoldtorentin2004mayyetseehousepricesfallbacktothoselevels,butit’sprobablybeenastressfulfewyearsinthemeantime。

Sowhatarethelessextremeoptions?

Short-sellUKbanksandhousebuilders

Agrowingnumberofderivativeproductsallowyoutoprofitfromthefallingsharepricesofcompanieslinkedtotheresidentialpropertymarket。

Mortgagelendersareanobvioustarget,withasqueezeonprofitslikelyaslendingconditionstightenandindebtedconsumersbecomemorereluctanttoborrow。

BasedonfiguresfromDataExplorersLtd,JamesClunieatScottishWidowsconfirmsthatmortgagebanksBradfordBingley(BB)andAllianceLeicester(AL)areattractingsignificant“short-selling”interestfromCitytraders,whosellborrowedshares,aimingtoprofitbybuyingthembackmorecheaplylateronbeforereturningthem。

Thentherearehousingfirmsthemselves,suchasTheBerkeleyGroup(BKG)andPersimmon(PSN),whowillallseelowerprofitsgoingforward,particularlyiftheUKhousingmarketfollowstheUS。

Lastly,there’stheretailsector。

ThesestocksarelikelytosufferalongsideUKhousepricesbecauseUKconsumerspendinghasbeenproppeduptoagreatextentbyequityreleasedfromrisinghouseprices。

Homefurnishingfirms,suchasCarpetright(CPR),lookparticularlyvulnerable。

Youcaneasilyplaceadownbetonanyofthesesharesviaspreadbetsorcontractsfordifference。

Justremembertocapyourpotentiallossesbyalwaysputtingonastop-lossifyoudotakeoutsuchabet(formoreonspreadbetting,seeHowtomakebigprofitsfromsmallstakes)。

Someoftheseshareshavealreadyseensignificantsellingsincethesummer。

Forexample,asagroup,UKhousebuildersaredownbyaround30%。

Soyoumightwonderhowmuchfurthertheycanfall。

ButlookacrosstheAtlantictotheUSandyoufindthatsimilarfirmshaveseenaround75%wipedofftheirshareprices。

If,likeus,youbelievethattheUKhousingmarket’stroublesarejustbeginningandthatinflationarypressuresareunlikelytoallowtheBankofEnglandtohelpbyslashinginterestratesasquicklyaseveryonewouldlike,thenthere’sstillplentyofmileageinshortingthesestocks,evenattoday’slowerprices。

Shortinganindex

Ifspreadbetsandcontractsfordifferencesoundtoorisky,youmightwanttoinvestigatetheLondon-listedSG“UKPropertyIndexReverseAccelerator”,astructuredproductlaunchedinJune。

Youbuycertificatesat,say,£1,250,payingnostampduty。

AnyfallintheFTEPRAUKPropertyIndex(representingthebiggestUK-listedproperty-relatedfirms),ismultipliedbythreeandreflectedinarisingcertificateprice,uptoamaximumof£2,000(a60%profit,basedonbuyingat£1,250)。

Onthedownside,shouldtheindexriseby55%ormore,youlose1%ofyourinvestmentforevery1%increaseabovethatlevel;butthisislimited,inaworstcase,tothesuminitiallyinvested。

Whatisabinarybet?

Abinarybetisverysimilartothe‘fixedodd’styleofwagerfamiliartoanyonewhobetsonthehorses。

That’sbecauseyoueitherwinorloseafixedamount,agreedwhenthebetisplaced,dependingonwhetheryourwagereventuallycomesgoodornot。

SupposeyouarebullishontheFTSE100andyoubelieveitwillendthedayhigherthanitsopeninglevelof6,700points。

Thequoteforabinarybetmightbe25points–ineffect,thismeansthebrokerthinksyouroutcomefortheFTSE100isonly25%likely;ortheoddsareroughlyoneinfour。

Soyoubuyat25,havingdecidedtobet,say,£5perpoint。

Aslongastheindexfinishesthedayanywherehigherthan6,700pointsyouwinafixedamountcalculatedas100minusthequotetimesyourstake。

So100-25is75,and75x£5is£375。

However,shouldtheFTSE100closebelow6,700points,youpaythequotetimesyourstake,or25x£5=£125。

Thebeautyofthisstyleofbetisthatyoucanonlyloseafixedamount。

Ofcourse,equally,yourwiniscappedat£375,nomatterhowfartheindexclimbsabove6,700。

Thereareseveralbinarybetvariations,ofwhichthemostcommonisthe“onetouch”。

Hereyoubetthattheindexwillhitaspecifiedlevel(“up20points”)atanytimeduringtheday,notjustwhenthemarketcloses。

Youcanalsobinarybetonothermarkets,suchascommoditiesandforeigncurrencies。

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