issues
Published: 13 July, 2006
I am told that I called the top of the market by selling The Priory Shopping Centre. From my point of view I don't think so - it was just a price you couldn't refuse. Lunches and dinners are abuzz with talk of when will it be the top and what will happen on the way down? With swap rates rising it can't be long before we see an interest rate rise. It may be insensitive but the change in the Monetary Policy Committee forced by death may mean this rise will come sooner rather than later, as the main protagonist for keeping rates down has gone.
And we have the brave new world of REITs on the way. I think it is possible that REITs could be the straw that breaks the camel's back for this property boom.
Let me explain: we have seen a whole new breed of investor coming to the investment market, buying property after property. The returns are better than putting money on deposit; property has performed better than other asset classes. However, property does need managing and the rent needs collecting. As mean as banks and corporations are at least they do pay your interest and returns into your bank account. Unfortunately, rent has to be collected four times a year, and this could be 12 times if the BRC has its way. I suspect that the defaults, the bad experiences, will prove a big deciding factor if REITs market themselves as efficient managers.
It will give investors the opportunity to buy into property and management skills without the headaches and hassles. Therefore it's possible that small investors will sell and seek to plough their money into REITs. These sales could cause a slide in values and combined with a rise in interest rates we could see less demand to buy up the slack.
It strikes me that the correction could therefore be around six months away.
Anyway, on that cheery note enjoy your summer holidays!
Roger J Southam,
Chairman & Chief Executive, Chainbow,
[http://www.chainbow.co.uk]
