It’s time to sell property, not buy back in

As the commercial property market suffers, investors are piling out of property funds. But don't think for one moment that this situation represents a buying opportunity.

"If you want to know what's going on right now in the commercial property market, who do you ask?", says David Stevenson on Motley Fool. Banks and estate agents are hardly the most objective of commentators, "So why not go straight to the horse's mouth?"; namely, to the property companies that are buying and renting out office space across the country.

Shares in Land Securities and British Land are both down about 30% for the year, despite modest profit increases. Many analysts don't expect them to recover soon, which is unsurprising, given that recent figures from the Investment Property Databank (IPD) showed that the monthly return from commercial property in July fell to its lowest in 12 years. Average total returns (that's rent plus capital) came to 0.2%, with prices of shops and factories starting to fall.

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This is, of course, having an impact on property funds. The New Star Property and Skandia Property funds lost 0.9% and 0.3% respectively in the six months to June 2007, whereas they made 7.4% and 7.7% in the same period last year. Property shares funds have fared even worse. Aberdeen Property Shares and SWIP UK Real Estate over the past six months have fallen by 15.1% and 18.4% respectively. And despite advice from independent financial advisors to hold onto shares, investors are piling out in fact, The Sunday Telegraph reports that Norwich Property Trust is trying to discreetly offload some of its portfolio, as the proportion of the trust held in cash and shares has fallen to 15%, the bottom of the fund's target level, as investors withdraw their money. Some argue that this is a buying opportunity, but we don't agree. "Have real estate and [property] shares had their day in the sun? It looks like it and now it's time to see who has been burnt. We are not quite at the point of maximum pessimism", says Mike Prew, an analyst with Lehman Brothers. It's time to sell, not buy back in.

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