Property prices in the UK have already been on a continuous slide for the last six months. The coming months could bring additional losses. Some analysts are calling for market to lose as much as 15%. In a sign that this is imminent, several big insurers have chosen to close commercial property funds to withdrawals.
This closure will keep panicking investors from pulling money out of the fund. This is a very real fear since the UK has not experienced a plunge of this magnitude in its modern market.
The second half of 2007 brought about a complete reversal of fortune. The last 14 years have brought commercial property investors incredible returns. Between 2004 and 2006, commercial property investment returns climbed to 18.5%.
Investors who didn't take their profits at that time have lost those returns and more. It has become the norm for property investment firms to turn away withdrawal requests from literally thousands of small investors, and these investors are no doubt trying to stop their losses as they watch their investments decrease in value.
So far transaction remain below normal for the year. The commercial market is expected to lose anywhere from 5-10% before stabilising later this year. Unfortunately, investors will be dependent on the banking industry.
With companies like Bear Stearns folding, the credit crisis will continue to limit a banks willingness to lend on commercial properties in the future. It should be noted, though, that while commercial properties have lost value, they are returning to reasonable prices. This could attract more investors back into the market.
Some German property funds have already re-entered the market. Long-term, the market only has one direction that it can go: up. That is good news, indeed, for investors everywhere.
