Investors, having put 627bn into mutual funds dedicated to real estate investment trusts (Reits) just last month, seem to be pocketing some profit.

But as Reits fall from four-year highs, market watchers do not see a bursting bubble. In fact, the dip in shares comes at a time when industry basics can only improve.

'Funding from operation (or earnings) growth is going to increase in the next couple years, whereas it's been decreasing until now,' said Charles Lowrey, CE of Prudential Real Estate Investors.

In prior downturns, the real estate industry suffered even as others recovered, as it was overbuilt. This time, developers kept supply in check so a rebound in demand could boost property firms' earnings at once.

There are still shortterm risks. As job growth stagnates, office and apartment rents and occupancy rates, for example, will be flat to down through 2003, say analysts. And investors are beginning to sell their defensive holdings in order to buy growth stocks.

However, there is support for improved Reits earnings and share prices in the long term.

Resilient consumer spending has already helped retail landlords weather the downturn.

Industrial Reits are beginning to see a slight increase in leasing activity, and apartment Reits should benefit from rising interest rates, which slow the pace of home buying.

Business Day