property markt in crisis, page-64

Residential investment no longer safe
March 23, 2008 - 10:45AM

In the past an escape trail from the wrath of bear markets has been property, traditionally viewed as a stable and strong performing alternative to falling equity prices.

However, pundits say the rules have changed. The world's stock markets are suffering because of the current fall out from the US sub-prime lending crisis and the global credit crunch.

Greg Canavan, senior equity analyst with Fat Prophets, says easy credit led to a property boom in recent years, so the current tightening of credit availability was unlikely to bring on a property market revival.

"When the stock markets tank, the old adage goes, it must be time to switch into property," he said.

"In past normal cycles, this strategy has generally been a profitable one.

"However, we are not in a normal cycle."

Mr Canavan said in Australia, as with the US, UK, Ireland, Spain and many other countries, markets have gone through a residential property market bubble over the past decade on the back of a cheap credit.

"But since the Sydney property peaked in 2003, it has struggled to post any gains since and while other capital cities have performed much better over the past five years, there is reason to believe that the good times are over," he said.

He said the main reason for this was the sharp increase in the cost of debt.

"These higher debt costs are now playing havoc on the highly geared listed property trust sector, and there's no reason to think that its different for residential property," he said.