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Property sector now best performer this year so far

3rd February 2008 | back to article listings BACK    print this article PRINT

The FTSE real-estate sector of the stock market has grown 4.9% in January alone, unlike the FTSE that was down from 6451 to 5880 (9% down) with a low of 5338 (17% down) at one point.

In a similar way REITs lost up to 50% of their value in 2007 compared to the prime commercial property they invest in falling a mere 15%-20% or so - never buy property, a long term illiquid asset, within a highly liquid public quoted company - not unless you buy now that public sentiment has driven share prices well below the net asset value, 35% in the case of British Land - I'll be buying some of those in the morning. It is worth noting that REITs had a peak value on the day they were launched on January 1st 2007 and have fallen ever since but now is probably close to the bottom and strong growth could be expected for those of you who still buy shares.

Another interesting comparison between the overheated prime Grade A commercial property sector and the not-so-overheated residential sector bears examination. We have been warning that Grade A commercial property sub 5% yields were too low for the last two years (this differs significantly from small regional commercial property at 7% + yields) yet residential property has barely wobbled since its peak. Grade A commercial property has fallen 15-25% from its highs according to headlines but in fact these are mainly distress sales at fire sale prices by property funds trying to raise cash for investor redemptions and are probably overstated compared to where the true market price will level out in a few months, however residential property is just down 1.3% since its recent high late in 2007, according to the Assetz House Price Watch, the only analysis of all the leading house price indices. What's more both Nationwide and Rightmove have indicated that the market seems to be firming up again in January so our forecast of 5% growth in UK house prices in 2008 still looks realistic even if it is above all other commentator's targets. It is too early for all data to be in for January house price changes but the figures so far indicate between 0 and 1% fall - a far way from the 9% stock market fall in just the last month.

So residential property is clearly the winner of mainstream investment classes over recent months with the turmoil of the credit crunch causing prices to fall in the stock market, commercial property market in fact almost everywhere except the housing sector and gold. Housing 'as good as gold' - whatever next...

Stuart Law

This news story has come from the property investment blog by Stuart Law, CEO Assetz plc.

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