If you want to know why the global property cycle can keep turning, Switzerland just gave you the answer last week.
Half of all Swiss pension funds are now looking to offer mortgages for the first time, to generate the returns they need.
That’s what happens when the yields on government bonds go to nothing or negative as the war on cash intensifies. You either find a way to generate a return, or the central banks will wipe you out.
The Financial Times reported on the pension funds:
‘Some of these have also recently started selling mortgages to non-members as the search for yield intensifies, pushing their mortgage exposure up from 2 per cent of assets to 7 percent.’
Pity the Swiss fund manager: they now face interest rates on cash deposits at -0.75%. Or a yield on a 10-year government bond of 0.375%.
What choice do they have, besides stocks or property, really?
Swiss pension funds are hardly alone. The Wall Street Journal reports that the volume of malls, shopping centres and other retail real estate purchased in Europe this year has hit €64 billion ($67.8 billion) as of the end of November.
It is now highly likely that retail property sale values will be the best (in euro terms) since data tracking began in 2007. Why? You guessed it: investors looking for yield.
Europe, as a general rule, is offering comparatively good returns and an improving economy. Of course, plenty of investors will be wishing they had had the guts to go into Europe earlier. They would have been sitting on a healthy capital gain as well by now.
To give you an example, the value of a shopping centre in the Dublin area is up 70% in two years.
It’s all in the timing, isn’t it? Of course, as we keep saying over at Cycles, Trends and Forecasts, it’s simply further proof that a major setup is coming.
Events will keep pushing the cycle to its inevitable conclusion. Boom, then bust. If you want to know the dates so you can ride it up before the going turns ugly, get the timing here.
Associate Editor, Cycles, Trends and Forecasts