Trust me
Will REITs ever work in UK residential markets? Andrea Kirkby investigates.
J
ust when you thought the credit crunch was over, things seem to be getting worse. Stock markets have fallen 12 to 15 per cent from summer
highs, and are still below 2007 levels, while capital growth in commercial property stalled, according to IPD. Commercial property companies, most
of which are now REITs (Real Estate Investment Trusts), saw share prices collapse from 2007, troughing in 2009. They have recovered, but share prices are nowhere near historic highs. British Land is valued at 525p – far below its £15 high – and Land Securities trades at 713p; before the credit crunch it was £20. Up till August there had only been good
news. British Land and Land Securities, doyens of the sector, delivered better than expected results in May; anyone who had invested in 2010 would have made 30 per cent, well ahead of the market. The sector also benefited from inward
flows of investment from abroad, particularly the US. One factor in this may well have been the creation of REITS, a form of investment with which the US is already familiar; but there’s also been a sense that prime property in the UK remains a safe investment in a risky world.
Unite owns and operates student halls of residence, with over 21,000 beds in 64 separate properties.
British Land
delivered better than expected
results, but share prices are still low.
40 DECEMBER 2011 PROPERTYdrum
The Top of The markeT But the property sector has fallen dramatically since the start of August, underperforming the FTSE All-Share Index significantly. Despite the latest falls, the sector is still overvalued according to some analysts, with companies trading around their book values (property companies usually trade at a discount to their portfolio value) and yielding only 4.4 per cent. That’s more than the forecast 3.8 per cent yield on the FTSE 100 index, but not by very much – which removes the traditional attraction of the sector to income investors, who can get much more interesting yields in the
telecoms or pharmaceutical sector, without the perceived high risk of the property market. By comparison, back in the dog days of 2009, share prices were so low that you could get a yield of nine per cent on British Land. Morgan Stanley called the top of the
market accurately with its August downgrade of the entire property sector from ‘overweight’ to ‘underweight’. The bank now expects to see a decline in net asset values, and explained that, “We think it is unlikely capital values are set to rise when most of the West faces a significant risk of a recession.” It slashed its target
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