In Defence of Journalists

Posted by Mark on 14th Apr 2009
To provide a bit of balance to my last post criticising a certain elements of the property press, I would like to commend Daniel Thomas' editorial in the FT this morning(  If you can't be bothered to read it, the title is "Cash Buyer's Won't Sustain Commercial Market Forever" which pretty concisely  sums up the following 973 words.

Morgan and I have shared this slightly sceptical view of the current market for a little while, but I am particularly impressed that Daniel did not have to resort to the stock in trade cliches of "green shoots" or "dead cat bounce" or my own favourite "bear market bull trap".

When this is considered alongside the current availability of new debt and, more interestingly, what happened to net lending in the last property downturn of the early 90's then anyone pinning there hopes on a sustained bounce back in the next 12 months is likely to see them dashed.

As you can see in the link to this graph, net-real-estate-lending, stayed stubbornly around zero from 1991 to 1997.  Given the massive deleveraging that must occur to allow the global economy, never mind the bloated balance sheets of our banks, stuffed full of real estate loans, to balance, it is practically impossble to forsee a return to any form of credit driven recovery over the short to medium term, for all but the best of assets.

That's not to say that secondary property won't perform or there will not be very good money to be made, only that initial yields have much further to fall to allow investors to make equity type (>15% IRR) returns on very lowly geared purchases.

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