And, with the latest figures from the Investment Property Databank UK All Property Index showing £100 invested in July last year would now be worth just £68, the reason people have been rushing to take their money out is obvious.
However, Gleeson believes that the sell-off has seen valuations slashed across the board – in some cases without regard for the real value of the funds in question. He said: “In the long term the massive fall in valuations that has afflicted the property market has left some serious bargains on the table for those investors brave, or patient, enough to ride out the downturn – which of course has still got some room to run.”
A number of funds in the IMA Property sector returned limited losses in 2008, which is not bad considering the sector lost almost a third of its vale, but the real opportunities Gleeson thinks are among closed ended funds called Real Estate Investment Trusts (Reits). Structured in a different way to unit trusts, shares in these funds are traded on the stock market just like an ordinary equity, and they have seen massive falls in their valuations in the last year.
Performance of IMA Property sector over the past year
Source: Financial Express Analytics
“Three good examples are Invista Foundation Property, ING Real Estate and Henderson Global Property, which have taken a beating – losing 77.9 per cent, 77.1 per cent and 48.1 per cent respectively, but in the last month they have bounced to gain 26.9 per cent, 20.7 per cent and 16.1 per cent in that order.
Source: Financial Express Analytics
“As an investor, you shouldn’t be afraid of these losses, because it’s not you who’s borne the brunt of them – the money has already been lost, so you have to ask yourself whether this means there is an opportunity there.”
Reits are in a unique position, he thinks, because of the way in which they are structured.
These are investment companies which have their own shares, and these shares are trading at low valuations because nobody is buying Reits at the moment, furthermore the equities in which they actually invest are also trading at low valuations because nobody is buying property companies either.
“If the market turns around,” he said: “you get a double uplift as the demand for Reit shares goes up, and the demand for the shares which they actually hold goes up too – it’s almost like a geared effect.”
Kevin McGrath, managing director of F&C Reit Asset Management says that it is a good time for an some investors to buy commercial property funds, especially those which have only recently been launched and can take advantage of low valuations in the assets they want to buy.He said: “Yields are high, prices are historically low and overly discounted. Some of the F&C funds exited the market in 2006, and will again start to invest this year. The real benefit will be for new funds who will be able to acquire at the bottom.”
Alessandro Bronda, head of investment strategy for Aberdeen Property Investors, agrees, he said: “Property yields stand at exceptionally high levels relative to cash, nominal government bonds and index-linked gilts, and are set to rise further in the short term. Property will prove increasingly attractive from an asset allocation perspective as a consequence.” City legend Bill Mott, manager of the Psigma Income fund, has already begun to pick up property equities – including British Land, Land Securities and Hammerson – however he stresses that the purpose of this move is to protect against the threat of inflation. PSigma managing director Ian Chimes said: “Mr Mott feels if inflation does come back into the system as a result of stimulus being thrown into the economy then a small allocation of property shares at this time could be a useful inflation hedge.”
Source: Financial Express Analytics
Kelvin Davidson, property economist at Capital Economics, is cautious about the short term prospects for property firms: “We think the actual value of real property assets will drop further due to falling rents, the bankruptcy of companies and the vacancy of properties, but most of the adjustment is already being seen. The end may be in sight, so if you are an investor who has a lot of cash and is willing to sustain a capital loss and buy into a long-term asset, it may be the right time.”
“To put it into context,” said Gleeson, “Investors should remember that the property market is subject to something of a delay. If the market picks up, which it won’t do for a while, it will be a year or so before that means people are looking for more office space, so it takes a while for an upturn to be felt by the property sector.”
“When the market does pick up however, and sooner or later it must” he added: “You can be sure that the property sector will follow – and starting from a low base means it has a lot of upside to go for.”