Ways a holding can fail

Investment risk is the chance that a holding does not do the job it was bought for, in the time and the currency that job required. Volatility, the movement of a published price, is one piece of that. It is a poor summary. A flat that does not trade for two years has little volatility and may have a serious liquidity problem. A listed share can be volatile and still be easy to leave.

A list worth writing in sentences

• Price: the resale bid can be lower than the case that was written down, including in markets with good institutions.
• Income: the occupier can leave, pay late, or be prevented by rule from paying what the illustration assumed.
• Liquidity: the exit can take longer than the owner’s cash allows.
• Leverage: debt can turn a dull year into a forced sale. No leverage ratio is safe in the abstract.
• Currency: the unit of the asset and the unit of spending can part company.
• Law and title: the thing owned can be a lease, a strata interest, or a company share, with different failure modes.
• Politics and tax: foreign-ownership rules, stamp duty, and landlord-tenant law move.
• Operations: buildings decay, managers fail, and insurance has exclusions.
• Concentration: one city, one tenant, one borrower.

The IMF’s financial-stability work and the BIS property-price series exist because these risks show up in the official record after they have already mattered. They are not quoted here as a heat map. A heat map is how a specific risk gets lost. Thailand’s foreign-ownership rules, the UAE’s supply waves, Georgia’s smaller buyer pool, and the United Kingdom’s tax and leasehold detail are different items. A single ‘risk level’ would be a worse description than four sentences.

The practical product is a note that says which risks are accepted. Accepted is not the same as ignored. A buyer who wants a holiday house has accepted seasonality and should stop describing the holding as income. A buyer who wants income has accepted void periods and management. GRIP will not complete that note for a reader. The categories are here so the note can be completed without a slogan in place of a risk.