Experts caution investors on 'hyped' property sector.

Posted On Wednesday, 16 July 2003 02:00 Published by eProp Commercial Property News
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Property analysts are cautioning people not to invest blindly because it is an expensive asset class.

Property-Housing-ResidentialAlthough investors in the listed property sector are still assured of income, property analysts are cautioning people not to invest blindly because it is an expensive asset class.

Simon Pearse, MD of Asset management company The Income Specialists, which is a division of the Marriott Group, says prices have been pushed up "quite a long way".

Pearse says that despite warnings from many market commentators not to use past performance as a measure of future performance, it has become common practice to base investment decisions on the performance of unit trusts over the past quarterly, yearly and five-year periods.

He says that over the past three years or so, much hype has been created in the market about listed property as an asset class.

"We would like to temper this over-excitement at this stage and encourage investors to take an objective look at this asset class before investing in it," says Pearse.

"In our view the lack of rental growth would indicate that listed property is currently fully priced. Hence, while an 11,5% income yield with prospects of 12%-14% total return over the next five years is attractive to income-dependent investors in a low interest rate environment, these investors should be aware that they are paying a premium for this investment at the moment."

Marc Thomas, a director of The Income Specialists, says the listed property sector is trading at a premium of 5% to its underlying value.

Thomas says that with listed property currently trading at a premium to the net asset value, investors could actually do better by purchasing physical commercial, retail and industrial property.

"We're not saying buy physical property. We're looking at it from a comparative point of view," he says.

"We use it an indicator as to whether the listed sector is trading at a premium or a discount to its underlying net asset value."

Pearse says the listed sector as an asset class is expensive, having already built prospects for further interest rate cuts and a lower inflation environment into its price.

"Should further interest rate cuts not materialise, however, yields could move back up and investors would then be able to purchase a higher yield," said Pearse.

 

Last modified on Monday, 12 May 2014 11:46

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