Norway sovereign wealth fund looking at property investments

As the Scottish government looks towards next year’s independence vote and the possible creation of a Scotland sovereign wealth fund, the SNP government could do worse than look across the water at Norway. The Norwegian government has had a sovereign wealth fund, which basically creams off income from the oil industry, for many years now and it was worth $810 billion at the last official valuation.

While the managers of the Norway sovereign wealth fund have already been looking at the European property market, a revelation today shows that there could be a significant investment in worldwide property by the fund in the short to medium term.

Current criteria

The current guidelines of the Norway sovereign wealth fund dictate that a maximum of 5% can be held directly in property assets. This equates to around $40 billion although at this moment in time property assets held within the wealth fund are valued at around $7 billion. There are rumours that the managers of the fund have been sniffing around the UK property market and indeed there has been speculation regarding the future of some of the U.K.’s largest listed property companies.

Quote from PropertyForum.com : “As the price of UK property continues to move higher and higher there are now serious concerns that first-time buyers may become a thing of the past.”

In theory the managers of the Norway sovereign wealth fund could spend in excess of $33 billion in the short to medium term and still remain within the original investment boundaries of the fund.

Is European property looking attractive?

The UK property market has performed admirably over the last couple of years despite a difficult economic background. The situation in Europe is very different with concerns about the euro still lingering with even the strongest economies across Europe, such as Germany and France, struggling to make much headway as they fight to escape the recent recession. This has created a situation where European property appears on the surface to be undervalued on a long-term basis although there are concerns that Spanish and Portuguese banks in particular are about to dump an array of unwanted properties on the market.

While the UK property market continues to go from strength to strength, there is a general feeling that European property investors are sitting on the sidelines waiting for this potential last leg of the downturn. Some brave investors are starting to “dip a toe in the water” but we still have an array of unwanted property hovering over the market, with rumours it is available at rock bottom prices, impacting short to medium term sentiment.

Has the euro saved the UK?

While UK governments of recent years have refused to embrace the euro, much to the dissatisfaction of their European partners, this has played a significant role in the ongoing UK economic revival. Indeed the UK property market is seen as something of a safe haven in light of problems within Europe and with investors such as the Norway sovereign wealth fund looking towards the UK in the short term and Europe in the medium to longer term this could be exciting times for property markets.

The situation in the US has not been assisted by the recent breakdown of budget talks, although the warring factions did come to an agreement at the end, but many still believe there is good value in some areas of the US property market. It will be interesting to see where the larger investors invest their money in the short to medium term and indeed whether the UK will continue to maintain its untarnished reputation amongst “safe haven” property investors.