Sunday, September 11, 2005

Pop goes another great business opportunity

I’ve mentioned before that I’m in the process of moving house. So yesterday’s Financial Times (10 September 2005) was very interesting.

The thing that really caught my eye was a story entitled Investors get chance to profit in property. A bank and an estate agent are planning to offer an investment product that will track the housing index.

At the moment, for the individual, the only way to get exposure to the property market is by buying property but that is not always what we want to do - it is expensive, time consuming and may not fit with our life style.

Now I’m not one of these people who considers property investing to be a good thing. The figures I’ve seen show that the stock markets out perform housing markets in the long run. However, we all need somewhere to live and once you add in the utility of owning a property then I think it makes financial sense.

But would I buy a second property and rent it out? No, its a lot of hassle and the returns are not actually that good. In fact, as far as I can see, the only real return is from rising property prices, if they are not increasing you loose. And don’t forget, they can, and do, fall.

In fact, its worse than that. What many people forget is that not only do property prices need to be increasing but they need to be increasing more than the next best investment - notwithstanding risk exposure. So, in fact, the stock market might expose you to more risk but the returns are better, or, a savings account or Government bond may offer better security at a return that is not a lot less.

Anyway, I didn’t mention this story to get into a debate on property investment - and please don’t take my advice, I’m not an expert!

No, I mention this story because Jonathon Sefton suggested this idea to me about 12-18 months ago. He’d done some research and decided he could buy a set of products that would create such an instrument but it wasn’t easy.

Then he suggested: would this be a viable business? And the suggestion: why don’t we do it?

Well we didn’t, and now someone else is. Once again I passed. Perhaps I need to set my sights higher. Maybe I’m too risk averse, or maybe I don’t know a good thing when I see it. One day I’ll get it right.

1 comment:

  1. Interesting. The Abbey / Knight Frank product doesn't look quite like what I had in mind. I was thinking about ways of hedging house price risk, i.e. protecting yourself against falls in property prices if you're an owner, or against rises in prices if you're not an owner. There's an interesting paper on Hedging Housing Risk in London (266KB PDF) that covers some of this. They discuss using house price spread bets from IG Index to achieve this. (I've also got some related links on


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