Mike Prew, the equity analyst at Jefferies - or as I will now call him, the Sage of the City - did his bit to hit property stocks this morning with, possibly, the most negative note we’ve seen on the sector in quite some time.
While the ongoing economic crisis in China dragged the FTSE100 down 2.4% in early trading, Prew’s note played it’s role in sending leading property companies down even further, by 3-4%.
His note should not be viewed as controversial. His view is the most sensible and rational I have seen from a property analyst since this unsustainable new bubble began to inflate. That bubble, as Prew, points out, has now blown up to bursting point.
Prew says six years after the point of maximum pessimism, property stocks at now at the point of maximum optimism. He’s right, and we should all thank him for his candour.
As some in the industry continue to increase debt levels, invest in new developments and try and sell completed ones there is, however one company that has remained out of the fray, away from the rush to buy at almost any price. As Prew points out, that company is Land Securities.
Low leveraging is about to pay off especially if the wings of the real estate developer-trader and price-equity model are about to be clipped. As a result LandSec’s chief executive Rob Noel’s hunch could be about to pay off bigtime.
But what does this mean for the rest of the industry. Nothing lasts forever. We’re at the seven year point in the cycle. Cycles have tended to complete their rotation after seven years, and we’re heading for a period of consolidation, and then a downward revaluation of much in the property sector. There’s been some big, huge in fact, deals over the past couple of years. I suspect some of those investors late to the party, particularly in the London office market, may well be licking some substantial wounds in the next 12 months.
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