Killing liquidity in Jersey property market [Ben Shenton | 20 Sep 2023]

Can you imagine living in a jurisdiction where the laws are so subjective and badly designed that no one can be certain they are abiding by them.

Imagine a place where those in power, whilst admitting their legislation is undefined, have the power to fine you heavily based on their subjective interpretation and their personal approach towards you.

Welcome to Jersey.

I have been an investment manager for longer than anyone at the JFSC, and I have also served as a legislator. I am a believer in free markets and well aware of the unintended consequences of both regulations and the restriction of trade.

Imagine this situation.

Wendy has inherited £1,000,000. She does not want equity exposure and has invested in bond/loan investments that will give her a fixed interest rate return and a defined repayment date. She invested £200,000 in a States of Jersey Bond, £500,000 into UK Gilts (UK Government Bonds) and invested the balance in private loans (3 x £100,000).

In effect she has lent £200,000 to the Government of Jersey, £500,000 to the UK Government, and £300,000 to three local individuals looking for short term liquidity.

They are grateful for the loans as the banking system is broken, partly due to over-regulation and capital constraints – but that’s another story.

Her lawyer has contacted her to explain that from 1st July this year the loans to the individuals could be construed by the regulator (JFSC) as running a business and therefore subject to onerous regulation.

The unhelpful JFSC write that the definition of whether an individual is acting as a business “is subjective” and they fail to give any clear guidance on the matter.

The regulator will decide on a case-by-case basis and have wide ranging powers to deal with those it deems to be in breach of their badly defined and poorly thought out regulations.

For decades, the system worked well.

Investors got decent returns on their cash, often with very low risk, whilst those that did not fit in with the increasingly narrow bank lending criteria had access to funds – this was particularly appreciated in those involved with property development.

Of course, Wendy was not operating a ‘business’ by providing on-island loans to improve her investment returns.

However, like many other individuals she will pull out of the market as the advantages of private lending over bond investing is wiped out by the onerous regulation requirements and risk of a subjective fine.

With the property market already suffering from higher interest rates, an economic turndown, and a glut of apartments coming on-line, together with indications of population decline, this appallingly ignorant legislation could not have come at a worse time.

If the politicians don’t forcefully rescind this legislation they will suffer the consequences, as will all of us.

Source

https://www.linkedin.com/pulse/killing-liquidity-jersey-property-market-ben-shenton