13.11.09

By Deirdre Hipwell

Guy Morrell sees signs that improved performance could be short lived

Given the experience of the past two years, one would think fund managers would be happy with any recovery in the property market, no matter how small or what shape.

However, there are growing fears that improved sentiment about the property market is a false dawn and that we are in the “eye of the storm”.

Guy Morrell, head of HSBC Multimanager at HSBC Global Asset Management and manager of the HSBC Open Global Property Fund, says there are signs that the UK property recovery is in danger of being the “wrong sort” and could be “short lived”.

Morrell says the market’s improved performance is not driven by rental values but by investors “tempted by the record gap between cash and property yield”.

He warns: “Given the lagged impact of the underlying economy on property occupier decisions, we can expect conditions in the occupier markets to weaken for some time.

“The danger is that increased demand for investment property drives prices up too quickly and renders the market unattractively priced once again. If so, it will be the wrong sort of recovery — it will be unsustainable and would leave the market vulnerable for a further decline.”

Based on current market yields, HSBC considers the UK market offers reasonably attractive returns over risk-free assets on a five-year view and current yields have priced in further falls in rental values.

Morrell says: “One scenario is that capital values stabilise and that the market delivers modest, single-digit total returns dominated by income. Such an outcome — though considered unexciting by some — would be sustainable.”

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Source: Property Week (www.propertyweek.co.uk)