Property trusts likely to fall: surveyWednesday April 16, 2008,...

Property trusts likely to fall: survey

Wednesday April 16, 2008, 2:33 pm


Australian property trusts are more likely to decline in value over the next 12 months as the rising cost of credit diminishes returns, according to companies involved in the real estate market.

According to an Australian Property Institute (ASX: API.ax) survey, about 50 per cent of respondents said there would be a decline in the capital invested in property trusts, whether they were listed, unlisted or based locally or overseas.

Less than 30 per cent of respondents said there would be investment growth over the coming year in any property trusts.

More than 60 per cent said volatility on the stock market would have an adverse impact on property trusts, with 81 per cent saying listed trusts would be negatively affected.

"The majority of respondents considered that the cost of credit was an issue, particularly for the highly geared funds," API NSW President Chris Egan said.

The participants were 30 companies involved in property sales, investment, financing or analysis who have offices in all of the country's mainland capitals.

Most respondents to the API survey said commercial, industrial, retail and residential property prices in Sydney Melbourne and Brisbane were close to, or just past the peak of the cycle, except Sydney's residential property, which was at the bottom of the cycle and is expected to stay there for the next two years.

The other property sectors and cities will enter a downswing over the next two years.

The effect of the variable interest rate rising well above nine per cent would be most severe on the lower end of the market, with 90 per cent of respondents saying it would have a significant impact.

In comparison, 45 per cent said there would be a significant impact on the middle part of the market and 7 per cent said the same for the upper end of the market.

"This is in an environment where some markets, particularly in western Sydney, are already performing sluggishly," MR Egan said.

"There is a strong sentiment that, if the variable rate was to rise well above nine per cent, it would have a devastating impact on some areas of the residential market."

Most of the participants said interest rates were likely to rise, with 81 per cent expecting them to rise in the next six months.

They also expect inflation to rise, with 74 per cent saying it will be higher in the next half year.