Now’s the time to sell

Each morning my in-tray is buckled under a mountain of press releases pumping up the market. Pundits talk about an inevitable ‘correction’. “Maybe later this year,” they say, “maybe next.” But while the experts are busy moving the goalposts, recent events show serious trouble brewing. The house of cards is now looking the most fragile i’ve ever seen. So Estates Review is taking the opportunity to call the top of the market right here, right now, unequivocally. Just look at how the money has been pouring into property in the last few years both directly and indirectly. Investors have been drawn to bricks-and-mortar like giddy lambs to the impending slaughter.

In a feature at the end of March, the Financial Times asked the big question: when will the property party end? Around the same time Gerald Ronson was giving his annual Heron International lunch speech. He told the audience: “There can only be one ending and we’ll look back and talk about how obvious the signs were.” Well Gerald, the lights are up, the music’s stopped and last orders have gone at the bar – the party’s well and truly over.

Slough Estates, now renamed Segrow, has acknowledged the fact that the ‘easy pickings’ have gone, but we think it is a bit more severe than that. Some of the big money men have been sucked into an opiate-like stupor; a Nick Leeson magic carpet ride of greed and deluded denial, and still behave as though summer will never end. But it always does, and it will be a long time bewfore they see the sun again.

Ronson predicted that property funds and hedge funds are among those heading for a fall. He pointed to the fact that everyone seems to be starting a property or hedge fund but said he wouldn’t trust some of those new managers to do his shopping at Tesco. They only knew a bull market, he said, and in some cases their analysis and management skills were poor. You can almsot taste it – that final fundamental change in the technical aspects of the market. No one wants to believe it but it is time to wake up and smell the coffee. The ever-growing wad of cash chasing yields touching on 4 percent seems to go against gut logic; with yield so low why is there so much capital chasing the market? The final nail in the coffin will be the inevitable change in capital gains taper relief which is sure to end when Gordon Brown moves on; taper relief is one of Brown’s babies and people have got too comfortable with it, taking for granted that it will alwats be there.

Look at the state of the lettings market – plenty of tenant demand for A-class property, but the secondary market is languishing. Retail is dead, and it all starts here. Make no mistake, the commercial property market is headed for change and there is only one way it can go. We do not even have to ask how much longer commercial market prices can keep climbing, pushing yields to rock bottom. Investors should not be fooled by headline rates; these are restricted to a very limited market.

The world and his wife are trying to get in on the bonanza, blind to the inevitable fall. We should all celebrate that iut has been one hell of a party, but as the sobering daylight appears on the horizon, those who don’t want to be faced with a crippling hangover have only one option: sell now.