Seeing signs of a British Recovery...
Seeing signs of a British Recovery...
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Nick Says...
Even the Germans and the Yanks see the light!!!... after all it's not rocket science!
Calling the bottom of the British property investment market is a high-stakes game no one wants to get wrong.
The risk of "catching a falling knife," experts said, has stopped any widespread return to the market. Most investors are looking to buy into a market on the way back up -- even if they miss the turning point.
But this is causing a Catch-22: Without deals, it is difficult to obtain an accurate understanding of where the market is; yet without that understanding, there are few willing to risk doing the deals.
So far, it has been equity-rich investors, such as German funds, and the brave, such as the opportunity funds, that have been making the early moves in a British market that has been indiscriminately hit by a fall in prices over the last 12 months.
But with these leading the way, there are signs that some mainstream investors are poised to return to the market. Some are even predicting that prices are set to rise again.
It would be a remarkable turnaround if that proves to be the case after record losses in British property, and the view remains contrarian. Total returns -- the combination of rental income and capital growth -- dropped 7.6% last quarter, the biggest fall in the history of the benchmark Investment Property Databank index. Capital values were down 8.7%.
But Robert Houston, chief executive at ING Real Estate Investment Management, said his company was ready to spend money in Britain again as value has now returned.
"We think that there is a buying opportunity," Houston said. He believes the latest average yield of the IPD index of 5.25% represents the British market's basic fair value.
"Anything more than that we think is fair value, and that is pretty much every sector right now. We don't see prices going down any further, and, if anything, they could go up in the next six months."
Houston said that circumstances were very different from the last severe fall in property prices in the early 1990s, when the market was hit by a three-year downturn.
"The fundamentals are sounder this time, as we don't see tenant demand falling off," he said.
Martin Moore, managing director of Prudential Property Investment Managers, said the nation was now past the crisis point.
"Last year was an extraordinary period even for my 35 years in the industry," Moore said. "We had been surprised how long the market had continued up, but it has corrected so hard that the market is fairly priced. Now is an interesting time to put money back in."
The fact that the sell-off in the market was so indiscriminate has meant that there are opportunities in many parts of the market, he said.
"As we look to the future, we cannot see any clear indications of why we should favor one sector over another," Moore said, though he warned that London had further to fall and that there were question marks over the "more average shopping centers and bulky goods parks."
There are still many who are nervous about returning to the market until there is more evidence the correction is over.
Agents said that the equity-rich German funds can justify paying prices at yields of 5.5%, for example, but are unlikely to go any lower, and so are unlikely to drive further compression of yields in Britain.
This leaves the opportunity funds, which have yet to show any real appetite to buy significant amounts, and sovereign wealth funds, which have so far been content to cherry-pick trophy assets.
"We see prices being cheaper at the end of the year than now," said Andy Rofe, managing director for Invesco in Europe.
A lot of money is coming from German and U.S. investors, he said, but it won't be spent until later this year.
"The U.K. has parallels with the U.S., and investors are wary of catching a falling knife," Rofe said.
Given the levels of uncertainty, however, it will be several months before an accurate picture emerges -- and that will depend on the wider economy.
"Overall, our observations are that, as best it can, the commercial property market is adopting a wait-and-see approach," said Jim Tucker, a partner at KPMG. "There are bound to be asset-specific problems for some stakeholders, and there are opportunists already seeking any assets that come up for sale.
"The next quarter, and the one after that," he said, "is likely to give a much better indication of how far and fast the market will fall, and how widespread the problems will be."
Definitely, one persons misfortune is another persons gain and we are seeing the exact signs over here in Spain.
People that have been serious about purchasing here have been monitoring the market for some time now, they know what they are looking for, they have seen the contrast in prices over the past 2 years and many serious property buyers are taking advantage.
Posted by: Resale Centre | June 12, 2008 at 10:53 AM