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European property managers failing to reprice assets

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The UK commercial real estate market is creating more opportunities for investors than Europe at present, a visiting UK fund manager claims.

"UK property valuations have fallen 45 per cent from peak to trough," said Clavis Walden Investments managing director Iain Keys.

"Whereas in Europe valuations have barely shifted as they are not marking down the capital value of the properties."

Keys said property valuations should reflect what is happening to a country's gross domestic product (GDP) as the two are related.

In the UK GDP is down by 1.9 per cent and property has reflected this, as the country is in the grips of a deep recession.

However, in Germany GDP is down 3.8 per cent, yet the real estate market seems to be ignoring these figures, he said.

"The European markets, especially Germany, do not reflect what the true price of property should be and there is no attempt to change them," Keys said.

"As a result, there are no deals being done to reflect the true price as nobody is buying."

He said the UK has taken its medicine on pricing and the market is very transparent, so investors can see what the true values are of properties.

"There is a load of data available from commercial real estate agents that is freely available and that backs up the view the UK is fairly priced," Keys said.

"This means there are opportunities and there is data to back up those claims."

Although some developers in the UK have run into trouble, there hasn't been a rush of fire sales as the banks are taking a cautious approach.

"The banks aren't forcing properties onto the market so there are no fire sales," he said.

"The banks are letting rents cover the interest payments, which is avoiding repossessions."

Although property values have fallen, Keys said the UK banks seem to be ignoring this fact.

"I think their attitude is to let sleeping dogs lie," he said.

"The banks are accepting the write downs at face value."

Clavis Walden plans to launch a property income fund in Australia through Equity Trustees. It will be the first fund the fund manager has launched in Australia and it will be an open-ended income fund, Keys said.

"The margin between gilts and property yields is attractive at present," he said.

"As long as the margin stays above 200 basis points, there will be fair value in the fund."

The fund will only invest in UK properties as Keys said the opportunities are not there to make an income fund work at present.


 

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