All good things must come to an end

Melbourne research house Managed Investment Assessments (MIA) predicts Australia’s property boom will end by 2010, warning investors to expect a sharp turndown in the property market.

MIA director Anton Lawrence said there were three factors that could trigger this downturn: “A higher interest rate environment, any decline in demand for direct property or a change in global investment flows.”

He believes the continued growth that the market has experienced over the past 14 years indicates that a market correction is imminent — a conclusion he said was supported by MIA’s recently published sector review into active property securities funds.

“The question for property securities fund managers and investors is to what extent does the Australian listed property trust index truly represent the fortunes of the local market?” Lawrence said.

“We have seen increasing evidence that investor sentiment, fund flows and market pricing have been shaped more by currency and interest rate hedging into foreign markets than the underlying quality of the assets.”

Lawrence said of the eight funds focused on in MIA’s review, each performed comfortably between October 2005 and April 2006.

However, the decision by the Bank of Japan to increase interest rates saw global hedge funds retreat from their positions — of which the Australian listed property trust market was not immune.

“When the market regained its momentum in late June 2006, and overseas money came back into the listed property trust market, their focus was on the larger stapled securities,” he said.