Breakthrough would be welcome, but instability stays with us

Jul 9 2008 by Tony McDonough, Liverpool Daily Post

ARE we seeing the first signs that investors believe the worst of the credit crunch is over?

At least one national newspaper is reporting that funds are being set up to exploit opportunities in the battered property market – a sign that some are calling the bottom of the market.

We’d all welcome a breakthrough, but I don’t think one, two or even three swallows make a summer. The current instability and lack of confidence will be with the development community for some time yet.

A number of banks have closed their doors for new business. Even when funding is available, it is offered at levels that are prohibitive. Therefore, the only way to get schemes off the ground is to provide substantial in-house funds to ensure your offering is lowly-geared and attractive to the banks’ risk-adverse polices.

Confidence can only really be restored by the large investment and pension funds dipping their toe back into the property market. But that’s not going to happen while you can walk into any High Street bank and deposit your cash at a risk-free 6%-plus. There is little point in investing in prime yields at sub-6%.

As reality hits home, land prices will reduce further, and opportunities will abound for cash-rich companies looking to pick up bargains.

There will undoubtedly be more casualties, as the less well-financed seek to offload at any cost simply to keep their heads above water.

At Downing, we diversified and got out of the residential market over 12 months ago. At the same time, we also sold a large student portfolio and we are now looking to reinvest this money and push forward with our next phase of company growth.