Partying Like It's 2009

In both Finland and Canada investors, many of them small investors are suddenly discovering that the real estate investment funds that they had their savings in will not let them withdraw money.

It ain't exactly a money market breaking the buck, as happened at the start of the Great Recession, but it seems to me that it might be the tide going out as the tsunami comes in.

Real estate funds have long been sold as low-risk investments, but that has not turned out to be the case as Finland's housing market started dropping.

Today, ten real estate funds in Finland have restricted investors' ability to withdraw their money.

Two years ago, many small-time investors had a rude awakening when they realised that they could not redeem their holdings in almost a dozen real estate funds.

As the housing market slowed, many investors began wanting to sell their fund shares. But with few buyers for the underlying properties, the funds lacked the cash to honour redemptions.

The lockup began in September 2023, when Ålandsbanken's housing fund — with over 6,000 owners and assets exceeding 700 million euros — became the first to postpone redemptions.

………

Ålandsbanken told Yle it is protecting the fund's value by not selling properties at a loss. 

Let me translate, "Protecting the fund's value by not selling properties at a loss," from the original Finnish.  It translates to, "We are insolvent, but we hope to keep the game of musical chairs going until things work out."

And, oh! Canada:

Andre El-Baba never imagined an investment fund could trap him.

A lifelong property manager from Vancouver, he’d spent decades navigating real estate markets and thought he understood risk. So when he put money into Romspen Mortgage Investment Fund in 2022, it felt like a safe, sensible choice. Such private real estate funds had become a popular way for Canadians to invest in developing new houses and condominiums, riding a construction boom that had lasted two decades. They offered solid returns, regular payments and the ability to cash out at will.

Then the gate slammed shut.

Not long after he and his father invested a combined C$2 million ($1.5 million), Romspen announced it was blocking withdrawals — a last-resort tactic that lets funds avoid selling assets when too many clients want to pull out their money. The principal Andre assumed would always be within reach was suddenly sealed off, with no timeline for release. He’s getting only a thin, 2% stream of monthly income in return — far less than expected. Every month, Andre’s account statements tell the same story: The cash is still there, but he can’t move it.

………

To be sure, this is not Canada’s Lehman Brothers moment. The development industry has other sources of capital, including C$13 billion of government money Carney plans to inject into a new agency to build affordable homes. But the gating crisis is a harsh reckoning for everyday Canadian investors, who for decades treated real estate as a safe bet.

Let me translate THIS from the original Canadian, "This is not Canada’s Lehman Brothers moment," translates to, "This is not Canada’s Lehman Brothers moment……… SO FAR." (Ce n'est pas encore le moment Lehman Brothers pour le Canada... JUSQU'À PRÉSENT. for the Quebecois out there)

This is going to get ugly fast.