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Property insiders expecting the correction to continue

From the AFR:

The owners of Australia’s $117 billion listed real estate sector are expecting the market to ‘correct’ and have kept their gearing to historically low ranges in anticipation of this according to feedback received by S&P Global Ratings.

At event in Sydney on Tuesday where the impact of tighter credit on property prices was discussed, S&P’s REITs analyst Craig Parker highlighted how groups such as Dexus and GPT had gearing levels below their stated policy ranges as a defensive measure against a reversal in asset prices.

Most of the REITs had gearing levels in the mid-20 per cent range compared with the low-40 per cent range they had before the financial crisis wrecked the sector forcing major asset sales and recapitalisations.

My own experience has been that after launching the Nucleus funds a year ago with a firmly anti-property bias in the stock selection, I have been surprised by the number of property developers who signed up as clients.

For a minority of these property developers, it has been simply a diversification strategy. For the majority though it has been about trying to: 

  1. get their money out of the property sector
  2. protect the profits they have made over the last ten years

Here is what ASX listed property companies have been doing on the debt front:

ASX Property Net Debt
Source: Factset

And I don’t know of any that are using the current declines in property prices to gear up and buy the dip.

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