Property outlook grim – Aberdeen

The outlook for the Australian property market in 2008 is looking “grim”, a global fund manager has warned.

Aberdeen Property Investors head of funds management Andrew Smith said Australia was tracking what has happened in the UK during the past 12 months.

The UK property market has endured a double dip in values, falling to a minus 4.5 per cent during December last year to slightly recover before falling to a negative 2 per cent in June this year.

Smith said the December result saw the UK property market come to a standstill and the need to write down values.

“There was a shift in perception of the UK property market from positive to negative,” he said.

“We are now seeing the effects of a world economy slowing and the issues of capital flows into UK property.”

The UK market has been protected to some degree by overseas investors.

Net investment into UK property for the seven months of this year has seen £4 billion coming from overseas investors, with almost the equal amount flowing out of local institutions.

Smith said the UK institutional outflow was explained by the managers moving capital to European markets at the expense of domestic property.

“In Australia, we saw the impact of the credit crunch last year and the local market has some distance to go before the second fall,” he said.

“If people lose faith in lettings then we will see the next stage of the cycle play out.”

While Aberdeen is predicting UK property returns this year will be about minus 10 per cent, it is more optimistic for 2009.

“We still have more falls to endure this year, but people are starting to get expectations for 2009,” he said.

“There is Middle East money from sovereign funds flowing to the UK and they will still invest even if the market is falling.”

Aberdeen is predicting a 1 per cent positive return in 2009 rising to 10 per cent in 2010.

“European markets have stood up well and German investors are active,” Smith said.

“While we don’t think Asia will escape the downturn, the urbanisation of countries such as China will keep the momentum going and deliver benefits in property markets.”

Smith sees the UK turning around the quickest, as it has endured falls longer than other property market.

Europe will be the next rising market followed by Australia, with Asia last, as it is only just experiencing the economic downturn.

Aberdeen, with its recent acquisition of Goodman, now has $53 billion of funds under management in property investment.