After several years of strong share price growth, many listed property players had a subdued 2007 as interest rate rises and soaring house prices hit the market.
After several years of strong share price growth, many listed property players had a subdued 2007 as interest rate rises and soaring house prices hit the market.
More recently, the fall-out from the US sub-prime mortgage crisis has created a degree of uncertainty in the sector, with Centro Properties the latest to get caught in the global credit squeeze.
This week the company, Australia’s second biggest shopping centre operator, revealed it had struck trouble refinancing $1.3 billion in maturing debt, and slashed its earnings guidance by 14 per cent.
Investors then cut 75 per cent from the value of Centro’s stock, with investors increasingly cautious that the amount of debt taken on by operators to fuel expansion could now be their undoing.
However, Bell Potter Securities head of wealth management Heather Zampatti said low-geared property trusts were likely to find greater investor support during 2008 as a consequence of growing volatility on the Australian stock market.
She said investors would likely seek shelter in stocks with low debt levels.
“We think the market will stay volatile and people will look for high-yield stocks, which are the property trusts, banks and infrastructure,” Ms Zampatti said.
“Protecting the downside is more important than finding the upside.”
Aspen Group managing director Angelo Del Borrello said Aspen, which fell 5.7 per cent on the back of the Centro’s downgrade, had sought to drive down its gearing ratio (debt to assets), which currently sat at about 36 per cent.
“The sentiment affects us,” he said. “But we are well capitalised and pretty conservative.”
Aspen was one of few property plays to outperform the S&P-ASX 200 index this year, delivering investors a solid return of about 30 per cent.
Mr Del Borrello said the company would have a greater focus on the east coast next year, particularly in the commercial property sector in Melbourne, because the market offered better value for money.
“It is the most affordable market in Australia,” Mr Del Borrello said.
He added that the B-grade commercial office market could soften in some markets, although this was unlikely in Perth until new office towers hit the market in about two years.
Mr Del Borrello said the Perth residential market would continue to plateau before growing again in about 18 months to two years’ time.
Cedar Woods will also focus on the Melbourne property market in the new year, with $1.05 billion worth of projects getting under way in the first quarter marking the company’s major entry into the Victorian property development.
The biggest, the 275-hectare Williams Landing, is a 10-year, $1 billion development that will take shape on land bought by Cedar Woods more than eight years ago.
Meanwhile, a $20 million Banbury urban apartment village in Footscray, six kilometres from the CBD, and a $30 million to $40 million residential development in Carlingford, near Epping north of Melbourne, are expected to boost the group’s 2008-09 earnings.
