Listed Property Sector Predicted to Decline

Submitted by Share Trading on 13 February, 2008 - 23:13

"I think there is a 20-30 per cent chance of a correction in asset value. This is my opinion, not the consensus of the market.'' Goldman Sachs Asset Management head of property Tim Hannon warned yesterday that the market had not yet factored in a possible drop in asset value in the second half of the year. Australia's Listed Property Sector has been down 30 percent since December and may fall further in the coming months.

Hannon had said that investors in the US and Britain had written down listed property stocks in line with their expectation of a 20-25 per cent fall in property asset value. But there had been few transactions pointing to such a drop. Hannon said highly geared trusts would be the worst hit when asset values fell. If a trust was geared at 60-70 per cent, and asset value dropped 10-15 per cent, the gearing would blow out to 80-85 per cent. He was not convinced all trusts had fully disclosed their debt positions. Fundamentals of the physical property market remained strong, but Mr Hannon said the fundamentals had also been strong in the US market before the collapse in confidence: "It can happen and happen very quickly.''