Some sense a recovery might be underway. But are they too late?
It was bound to happen at some point. Investors have been itching to break into this bombed-out sector for ages and start rifling through the rubble for bargains. The only surprise is that it took them so long.
So should you join the hordes before it's too late, or stand back in case of further shocks?
Prize property
In October, the IMA Property sector celebrated net inflows of a mighty £367 million, making it the most popular sector for private investors. It was also the second-most popular sector among institutional investors.
Investment fund platform Cofunds has also reported a surge in demand for property funds, this time from financial planners directing clients into the sector. Three property funds nestled inside the top 20 in November: Aviva Investors Property Trust, M&G Property Portfolio A Fund and SWIP Property Trust.
Any Fool knows that when retail investors and financial planners pile into a sector, that is a good signal to pile out. Is that still true?
Commercial break
Commercial property took an early pounding in the credit crunch, and the subsequent crash in values was always going to attract value-seeking investors.
The sector skipped the post-March bonanza, but rebuilding work began in earnest in July. In the third quarter, commercial property values increased for the first time since June 2007. But I wouldn't don my hard hat just yet, because I suspect the rally may have already topped out.
A property Charlie
I toyed with the idea of crawling back into commercial property in June in 'One recovery play you haven't missed yet', but decided against it. Let's look at subsequent stock performance to see if I made the right call.
Damn, blast, bugger. When I wrote the article, my favoured investment trust TR Property (LSE: TRY) was trading at 127p. Now it stands at 157p, a rise of 23%. I was also tempted by property company Land Securities (LSE: LAND), then trading at 490p. Today it trades at 644p, that's 31% higher.
So yes, I misfired again, although I can console myself with the thought that I made decent returns elsewhere. When you miss that kind of uplift, it's usually a sound idea to walk away. I've made the mistake of trying to play catch-up before. It rarely works.
A cold, commercial decision
I'm also sceptical because of my general chilliness towards stock markets compared to just a few months ago, when I was full of the joys of spring. I've had my fun in the sun, now I'm in the mood for a little winter hibernation.
I'm also worried that the property rally is yet another bubble built on rock-bottom base rates, and desperately needs underpinning by stronger economic fundamentals.
When the twin props of loose monetary policy and generous fiscal stimulus programmes are withdrawn, the revival may quickly collapse. And if the political and economic ground shifts after the next election, businesses will suffer, and voids may increase. And, as always, when investing in property, liquidity is another worry.
Buggin's or Muggins?
Many investors will have been flooding into the sector sector on the principle of Buggin's turn, rather than fully understanding the fundamentals. Commercial property was a little slow in catching on to the post-March rally, attracting investors who bungled that bonanza and were desperately craving another recovery play.
Property was a final, belated, dash for trash, and the race is over now. Anybody still fretting about inflation may still be tempted. Regular rent reviews make the sector a good hedge against rising prices.
And if inflation doesn't return, we could be in for years of low interest rates, and that could also help sustain recent price increases. So commercial property could still be standing on firm ground.
You're too late!
Yet I'm still wary. Property stocks have climbed strongly since July, but the rally is petering out.
Land Securities enjoyed a terrific run from July, peaking at around 725p in mid-November, so today's price of 644p actually shows a recent drop off 11%. British Land's (LSE: BLND) share price soared 45% from 360p to 525p between early June and mid-September, but has since dipped to 450p, a 14% drop.
TR Property has followed a similar pattern, as has the property sector generally. So once again the old maxim proves its worth, and private investors have been piling in after the money has been made, rather than before.
Patience is a virtue
The property rally was late and shortlived, and I reckon we've missed it for now. Any further economic shocks or a double-dip recession could even bring the sector tumbling around investors' heads once again. But if that does happen, I will be watching and waiting, and this time I will be ready to pounce, with the aim of holding property for the long-term.
I don't want to miss my chance again.
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