Landlords & commercial property investors - I've seen the light!

Landlords that have read my previous posts may be confused about why I'm so optimistic about commercial property shares as an investment. There is no doubt that capital values continue to fall and most industry experts expect this to continue.


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I was reading an article in the FT at the Weekend when it suddenly hit me this is whats going to happen to property shares so read carefully.

Things will get worse
YES YES things will get worse. Capital values will continue to fall in 08, but probably not as much as many pundits expect. According to Credit Suisse share prices predict another fall in capital values of about 26% which is on top of the 18% fall since last June. However, many share prices have already factored in these kind of falls. Shares appear discounted to reflect an "almost Armageddon" scenario, according to Patrick Sumner, head of property equities at Henderson Global Investors.

Tipping point
My prediction is that early in 2009 there is likely to be a tipping point and a sudden rebound in property shares, for these reasons:

1. A steadying of the prices of property assets will expose how undervalued property shares with good income streams are.
2. A realisation by investors that if inflation is back as i think it is for several years, the best hedge against it is property which always has its own intrinsic value and also because the real value of any debt secured against it is reduced over time. Remember inflation is a debtors best friend.
3. There is a wall of money that institutional investors have been building up waiting to invest in property to balance their portfolios. At the moment these institutions are holding back waiting for prices to stabilise.

Sudden rerating
When the market turns on commercial property shares, expect the rerating to be sudden as institutions scramble to buy shares at what will inevitably be bargain prices. This rerating could be all the more dramatic if some of the hot money currently speculating in over priced commodities looks for a new and more stable home.

The secret for landlords and investors will be getting the timing right. This is the tricky bit, I'll be looking out for signs and will obviously keep you up to date. If fellow landlords and investors have any ideas and thoughts please feel free to leave your comments. Maybe we can crack this one together!