Make hay while rivals are debt ridden, investors urged

Swift global price slide creates slew of opportunities

Equity-rich investors have enough firepower to revive the world’s catatonic property market but only if they stop hiding behind forecasts and make the most of their temporary advantage over debt-driven peers, experts said.

Delegates at Thomson Reuters’ annual Global Property Outlook event on Tuesday were urged to grab the slew of opportunities already created by a swift worldwide property price correction and in doing so, take more control over the length and depth of the downturn.

‘The best way to predict the future is to reinvent it,’ said Joe Valente, head of portfolio management and strategy at Allianz Real Estate, using an expression first used by technology mogul Alan Kay.

‘The old adage that investors are just a bunch of sheep is not too far wrong… but there are also a whole series of people who take what’s out there in the landscape and refuse to believe it…to them the future is something you actually create.’ Mr Valente said property prices would continue to fall for at least another year but long-term investors like pension funds and insurers should consider buying now if they want to fully exploit a repricing that has so far slashed around a third off commercial real estate values in Britain, the market broadly seen as most advanced in its correction.

He said global real estate markets were always prone to swings in sentiment which led to irrational pricing and that the current bout would continue to unwind over 2009 and 2010.

‘At each point in a market cycle, there’s a new emotion and with each new emotion, pricing moves. London is somewhere between despondency and depression…and should be the first out of the recession,’ Mr Valente said, adding he felt Paris and Germany were still in denial.

Tim Bellman, global head of research and strategy at ING Real Estate, told delegates he felt the global property markets should touch bottom in 2009 and there was potential for positive growth in 2011 and 2012. ‘By 2010, the capital value decline by and large should be behind us.’

‘Around the world, we would expect retail and industrial property to perform slightly better and recover slightly sooner,’ he added. He flagged continental Europe and parts of central and Eastern Europe as the more defensive places for investors to park cash in the near term, largely because of a tight supply pipeline that would promote strong rental growth when economies bounced back.

He advised ‘a mild, tactical underweight to the Americas’ and said Asian markets had greater downside risks because real estate prices in parts of the continent tended to ‘double and halve at the drop of a hat, particularly in Hong Kong and Singapore.’

Mr Bellman encouraged investors hunting for buy signals to remember traditional methods of pricing real estate and choose assets offering a healthy risk premium of between 250-400 basis points over the local risk free rate. By 2010, Mr Bellman said Britain, France and Japan - followed slightly later by Germany, Canada and the Netherlands - would have experienced corrections sharp enough to create an appealing risk premium between property yields and government bonds.

But Mr Bellman said equity investors had little time to waste in snapping up the highest quality distressed assets before a recovery gathered momentum.

Source : Business Times - 11 Dec 2008