The property market has become somewhat like the Wild West over the past few years. Anyone and everyone with a spare buck set out to stake their claim.
I’ve come across many an ill-informed amateur investor – from dentists to plumbers – buying on the assumption that “it’s property; it must go up in price”.
You can’t blame them. Until recently, returns on property have outperformed bank interest and the stock market. But that was then.
We’re seeing a correction in prices after a prolonged period of overvalue. Those who bought after the peak face two choices - sell up and cut your losses or hang on in there if you can afford it.
The institutional funds have brought another blow to consumer confidence. At the peak of the market the funds went buying like crazy. Now that prices are dropping, those same investors are under immense pressure from clients seeking redemptions. With property not being the most liquid of assets, many are buying the time to dispose of their assets in an orderly fashion, by postponing withdrawals for up to 12 months.
This has delivered another blow to confidence in the sector. However, while the funds might look like losers, it’s not necessarily reflecting a problem with commercial property as a viable asset sector.
As overvalue is being knocked out of the equation, cash-rich investors will be viewing 2008 as an opportunity to come back into a previously overheated market and will be lining up acquisition vehicles and the finance to do so.
Of course, much will depend on whether office and retail space demands and decent rent levels can be sustained and it could well be 2009 before we start to see signs of a recovery.
One thing’s for sure - the market must be allowed to reorganise and correct itself with the benefit of further interest rate cuts this year, but it will take time and require subtle adjustments and patience over the coming months.