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MARKET COMMENT
By
Carburton Street, London -- The debate about whether property investment will outperform an investment in the stock market will run and run. There are far too many variables in play when we talk about property and this only goes to make a comparison of the two types of investment too subjective to be meaningful. We looked at some of these problems in this recent article. But for those investors who are keen on property investment but at the same time are put off by the thought of maintaining the property, finding tenants, collecting rent and all the other joys associated with property investments, there could be a simpler solution. The London market has thirty-four quoted property companies that range from Land Securities (LSE: LAND), valued at £4.6b, down to a selection of smaller property companies worth in the region of about £100m apiece. Together they make up the FTSE 100 All-Share Real Estate Index. Over the past ten years, this index, as a whole, has tended to underperform the overall market. But within this group many of the larger businesses with their better portfolio of properties have been able to match the All-Share Index. Many of them have been able to boost shareholder value by buying back shares and returning unneeded cash to their shareholders. Only this morning Canary Wharf Group (LSE: CWG) said it has capital in excess of £2b, which could be returned to shareholders over the next four years. Many of these businesses have found the traditional practice of buying a property and letting it out to tenants failed to generate adequate returns on capital. Instead, some of these companies have moved into the field of outsourcing. Through this process, they would buy and lease back an entire building to its existing occupier. To improve their return on investment, they would include a number of value-added products, which could include provision of security services, cleaning and even broadband access. These property companies have found that without adding value to the service that they provide, the returns on investment are not attractive enough to stock market investors. It is unlikely that those investors who are pro-property will ever concede ground to those who are opposed to physical property investments. But perhaps property shares could be a suitable compromise. More: Investing in property discussion board The writer has a beneficial interest in Land Securities.