Property confidence deteriorates further

22-08-2008

Property confidence deteriorates further
More than three in four property industry leaders now believe investment conditions in the UK property market are deteriorating, according to Reita.

This compares to 69 per cent in Reita’s - the education and awareness campaign for property investment and Real Estate Investment Trusts (REITs) - previous 'expert panel' quarterly research.

Furthermore, almost a third of the experts questioned felt that conditions had deteriorated significantly, with a further 44 per cent saying there had been a slight deterioration.

Short-selling on the UK stock exchange is one of the key concerns for the organisation, which claims the trend has prompted unprecedented volatility in the property market.

Up to 60 per cent of Reita's expert panel argue shorting is a major factor in this current volatility.

"After range-trading for the first four months of the year, property stocks tracked the decline in financial stocks as growing worries about inflation, interest rates and recession dogged the market," explained Dave Butler, head of external affairs at Reita.

"But the activity of short-selling in the sector is at the root of the unprecedented volatility we are now seeing.

"The property sector as a whole is not very liquid, especially in the small and mid-cap names which are exposed to higher leverage or development.

"They have been the target of some aggressive (and indiscriminate) shorting. In the long run such volatility is not a concern, but it is certainly unsettling in the short term," he added.

However, there could be hope in the medium term for the market.

The five-year swap rate - the benchmark for property investors - fell sharply from a peak of 6.2 per cent in June to around 5.3 per cent last week, perhaps building in expectations of better conditions, or at least interest rate cuts ahead.

As Patrick Sumner, chair of Reita, explained: "Share prices are likely to reflect capital market concerns, rather than the fundamentals of tenant demand and security of income.

"It is fair to assume that pricing will overshoot on the downside, just as it overshot on the way up.

"However, one only knows where the bottom was in retrospect.

"It may turn out that July 15th 2008 was the low point, but then we thought that January 10th was as well," he concluded.

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