Hedge funds are building short positions against the UK residential property sector, targeting firms such as Zoopla, Rightmove, Barratts and Foxtons, as signs of a slowdown in the property market begin to build.
Tom Walker, co-head of global property securities at UK fund manager Schroders, said: “It is clear that volumes are decreasing, and prices have fallen, albeit a percent of two. What [the hedge funds] are calculating is that the trend continues and it isn’t just a one off or a seasonal slowdown.”
Millennium Management, which has approximately $23.8 billion in assets under management, declared a 0.5% short position in residential property development Barratt Developments on October 3, according to regulatory filings. The share price of Barratt, with a market cap of £3.6 billion, has plateaued since September 1st, rising 0.3%.
Popular property websites Zoopla, currently worth £894 million, and Rightmove, £1.9 billion, have also been shorted this month.
GLG Partners revealed a 0.56% short on Zoopla on October 2, and a 0.51% short on Rightmove four days later. Zoopla is down almost 15% since September 1st, and Rightmove down 21.5%.
Hedge funds are required to declare short positions over 0.5% to the UK financial regulator. Unless noted, the hedge funds mentioned in this article did not hold short positions over 0.5% prior to the filings.
House price demand slowed nationally for the third consecutive month in September, according to a survey from the Royal Institute of Chartered Surveyors (RICS) this week, which also showed London prices falling.
“Next year we expect the house price outlook to be far more subdued,” said RICS’s chief economist Simon Rubinsohn in a note.
Also this week, mortgage provider Halifax said that it expects house prices to moderate for the rest of 2014 and into next year.
“Higher interest rates are getting closer and caps on mortgage to income ratios officially come into force in October,” said John Bagshaw, corporate services director of Connells Survey & Valuation. “In particular a base rate rise isn’t just a factor for the financial world.”
Fund managers have also turned their attention to major estate agents, with two firms shorting Foxtons this month.
London based AKO Capital, which manages approximately $9.1 billion across long-only and long-short equity funds, increased its short position on Foxtons by 0.25 to 1.17% on October 7th, while JP Morgan Asset Management has also opened a 0.84% short position on the estate agent on October 1.
With a market cap of £590 million, Foxtons’ share price has fallen 14% since the start of September.
With the UK general election in May 2015, Walker at Schroder’s also highlighted the potential political uncertainty that may affect the UK housing market. “What does happen over the next 12 months as we get closer to elections is that various politicians make various comments that will help votes. We have already seen that in the form of mansion taxes, and that will inevitable cause some cooling off of the residential market.”
Some hedge funds have been betting on a fall for a number of months. Minnesota-based Pine River Capital Management also holds a short position on Rightmove, decreasing it slightly by 0.04 percentage points to 0.76% on September 25.
Brookfield Investment Management declared a 0.59% position on Savills in early August, while Highbridge Capital Management increased its short position on property investment and development company Helical Bar to 0.91% in late August. Helical Bar’s share price has fallen 1.8% since September 1.
Millennium International and Pine River declined to comment. Highbridge Capital, Brookfield Investment Management, GLG Partners, AKO Capital and JP Morgan Asset Management did not respond to requests for comment. Pine River Capital could not be reached for comment.
None of the property firms mentioned responded in time for press.
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