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Can property rebuild its damaged reputation?

With the recent mortgage meltdown in the United States and the global credit crunch, property trusts were hit hard last year, and this year so far, hasn’t been any different. With the foreseeable future unlikely to change and the cost of debt relatively high, the option of refinancing debt and finding cheap credit has been quite difficult, forcing many firms to deal with such issues in other ways.

Portraying a common scenario is Centro Properties Group. The firm's share price was decimated last year when the market realised that they held a more than substantial amount of short term debt that would have been refinanced had it not been for the credit crunch which made it nearly impossible. When many other property trusts found themselves in the predicament or at least a similar dire situation, they started selling properties as fast as they could, and to anyone who would purchase them. All conducted hastily in an effort to pay off some debt and lower debt payments.

Examples of this occurrence are industry wide among property trusts and were brought about by a collective and ambitious mentality that led to firms over extending their expansion strategies on the foundation of highly leveraged cash flows. Unfortunately, the credit crunch made cheap credit unavailable.

The actions of Centro Properties Group and many firms like it have at the very least caused many investors to question property investments with much more scrutiny. The general consensus is that investors are looking for trusts that have relatively limited exposure to international markets which are experiencing considerable trouble, such as the United Kingdom and the United States.

Although there are contrasting predictions for the rest of 2008, some forecasting stabilisation, and others with a more pessimistic view, investors are being much more cautious and are examining property trusts and their portfolios in much more detail. Whether or not the market will come to trust property trusts as greatly as they did even as recently as the beginning of 2007, is yet to be seen.

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