As property prices continue to rise and UK investors seek income havens in the commercial market, sentiment overseas appears to be somewhat different.
Cushman & Wakefield have revealed that foreign investors who bought London property post-2009 have sold £3.4bn worth in the past two years, making a combined profit of £870m. This followed a year of record investment in the space, with central London seeing £24.6bn in 2014.
While Grahame, manager of the IFSL North Row Liquid Property Fund, believes that commercial property will continue to shelter investor capital amid ongoing market uncertainty, he warned that in the short-term property funds could undergo a rise in redemptions.
“There is no doubt that, from a tactical view, property has had a very good run, and for some investors now is a good time to take profits,” he said. “A lot of people are seeing similar levels of returns as back in the 2007 peak, which is reasonable.
“We believe investors will be seeking safe havens such as the bond and commercial property. However, in the short term we cannot rule out a situation where direct property funds suffer from outflows.”
“We cannot rule out some sort of Chinese [governmental] intervention, and if the US does not raise rates in September we could see an equities rally.”
However, he predicted that although sentiment may swing back to equities in coming weeks, he is positive on property’s medium-term prospects.
He expanded: “Emerging markets are slowing down and equity markets are full, but in past weeks developed markets have largely ignored what is happening in emerging markets.
“People can no longer afford to ignore it, and are starting to focus more on capital security and protection. Ultimately this leads to either bonds or, more likely, commercial property. So strategic is going to outweigh tactical in coming months.”
Furthermore, while Grahame conceded that while there are certain similarities between current property valuations and those seen in the build-up to the financial crisis, he is confident that fundamentals are now much stronger and the market is in a healthy state.
“We have to distinguish the past from the future,” he said. “In 2007-08, a lot of property investments were leveraged, which is no longer the case and that is a big difference.
“Furthermore, low interest rates mean that is easier to service debt, so bringing that all together I cannot see a bubble.”
