Investment trusts focused on property shares have been performing very well. In the past five years, a good proportion of REITs that target overseas property have doubled in value, while REITs that invest in property in the UK have seen an almost 60% rise in value.
But property investment specialists are now a little bit dubious about the way in which the market is going to head. Some have raised concerns that the performance of REITs will slump quickly. They point out that while rental levels are higher than ever, rental yields are incredibly low and that means dividends are going to start to fall.
Property funds, for many people, do not represent brilliant value for money at the moment. However, this does not mean that you are going to need to exit them right now. The property cycle still has a decent number of years left in it yet.
Property cycles often last between four and 12 years. The average property cycle is about eight years. Upswings often occur between the second and the seventh year with downswings typically occurring between the second and ninth year.
At the moment, we are in the sixth of an upswing. In theory, we should be expecting a downturn in the market at some point in the near future. However, recent changes in the banking sector mean that this upswing may continue for a good few years yet.
After all, we are still the midst of a low-rates environment for bank lending. In addition to this, as more money is entering London from around the world, with about 75% of office space in the city now being owned by international investors, it is fair to say that the market is still heading upwards.
The current average yield for a REIT is around 4.5%. Experts believe this will not fall that much lower. But for many people, this yield is not good enough.
However, a significant amount of profit could be made if the market continues to see an upward trend – if interest rates remain on hold.
But even if the Bank of England does increase its base rate in the near future, the impact of such a move on the property cycle is still unknown.
So, in short, real estate investors should not get out of the game yet. Things may look a little bit bleak from time to time, but investing in a REIT is still a pretty safe bet, even if you are not going to end up making the huge sums of cash that you will probably have made in the past.