I'm a long term share market enthusiast who considers himself to be part of the "value" school of thought publicised by people such as Ben Graham and then Warren Buffett in more modern times.
I've recently been experimenting with commercial direct property investment and am wondering what everyone's views are on the applicability of value investing to this similar but different field and whether as a general rule direct commercial property valuations are more or less efficient than the share market.
So far I would say that the liquidity of the sharemarket leads to more panicked behaviour and throws up opportunities on a more regular basis and direct property valuations seem to be extremely slow moving with downturns taking a couple of years to play out.
Even the REIT's share prices got smashed around 18 months ago but the underlying value of their property portfolios has still not dropped by anywhere near the same amount that the share prices have which feeds into that slow moving effect again.
A working example of this here in Geelong is cap rates on industrial sheds (a particularly hot property class) which got down to around 4% at couple of years ago when interest rates were rock bottom and still haven't corrected at all despite now being lower than a risk free term deposit rate which makes no logical sense to me at all and I feel like I've been waiting around for value to present itself that's just never materialised. Clearly I know there's plenty more factors than just yield but I still think that needs to be key to weighing up a property investment and logic suggests the additional tenant and maintenance etc. risk of a property investment should be compensated by at least a full 1% extra income return above the risk free rate.
How many of the key principles of value investing are applicable to direct commercial property and which ones need to be discarded?
