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Are Property Investment Trusts In Crisis? Or Time To Buy?

With discounted rates readily available, is now the right time to buy into a property investment trust?

by Jonathan Stephens

Is Now The Right Time To Invest In Property Trusts, Or Time To Get Out?

Many of the leading property investment trusts – some of which are offering yields as high as five per cent - are currently available at what can only be described as discounted rates. The question is, however, do these investment trusts offer up a bargain, or should they be left well alone?

Demand Is Down

The main stay of these trusts is the commercial property market. Anything from office space and industrial estates through to warehouses and shopping centres can be found on their books, but are these portfolios strong enough to warrant investment?

The general trend has been such that demand for trusts like these has diminished over the last few months, hence the drop off in price for many of the biggest names out there. Share prices are down when the relative value of the assets held are taken into account and the income yield for those who decide to buy now has risen.

This has led to many experts stating that the sector is going through a time of change, and the focus now seems to have shifted from what was once all about fast-rising capital growth to a steadier increase in rental returns. The upshot of this turnaround is likely to be that the overall returns that one can make will become a slower affair, but there will be far more stability thanks to the increases being made on recurring revenue.

For those who are looking to invest in a vehicle that is going to bring them an income, the appeal will be strong. For those looking for a seat-of-your-pants ride to a fast buck, they may want to look towards residential property investment.

What Is A Discounted Rate And Why Is It Happening Now?

As we’ve already mentioned, property investment trusts buy mainly commercial property and it is the value of these assets that is key to determining whether or not the trust is being offered at either a premium or a discount. If, as is the case with many trusts at the moment, the share price drops below the current value of the assets that the trust holds, then the investment trust would be considered as discounted.

The reason why this is happening is said to be a ‘repricing’ in the market because of the recent strong run that has been enjoyed for the last three years. Across this period, the sector’s average gain was 58 per cent, and many see the current valuations as being in line with the capital growth predictions for the commercial property sector.

Commercial office space is expected to rise by 10 per cent this year, but that is comparatively weak when compared with 2015’s returns of 14 per cent and 19 per cent in 2014. However, that doesn’t mean that there isn’t value in the market, but it does mean that the market has changed.

So, the question of whether or not now is the time to buy into a property investment trust or to sell if you are already holding will largely come down to what you actually want from your investment over the coming months and years.


*This post was published according to the "Contributed Article Terms and Conditions"

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