UK - The speed with which the UK real estate market has corrected in recent months is partly because of the huge changes in its investor base, according to Legal & General's latest fundamentals briefing in London on Tuesday.
Rob Martin, head of research at Legal & General Property, said the speed of the correction was "unprecedented" for what he described as the "modern era" of property markets.
This phenomenon can be explained by the increasing diversity of the investor base, he argued, whereby long-term investors such as occupational pension funds no longer represent the majority of investors as they did in the 1990s and to an even greater extent in the 1980s.
"Today's market is more dependent on flows from retail investors," Martin said, such as unitised life and pension funds, real estate companies, property unit trusts and other unitised funds, which now collectively make up the largest portion of the investor base.
Consequently, Martin said, the market "is more sensitive to short-term investor sentiment."
This theory could explain the extent to which the UK real estate market has been affected by the global credit crisis and the associated downturn in investor sentiment and demand.
It would also explain, Martin said, why all sectors in the UK have been affected by the correction, with little differentiation between retail, office and industrial despite each having varying outlooks and characteristics.
Legal & General Property offered a relatively positive short-term outlook for the UK with total returns expected to turn positive in the second half of 2008.
However, Martin anticipates capital values to have dropped by 15% from their summer peak by the end of first quarter.
When asked at what point the market would recover, Martin said he expected to see a "turning point" in the middle of 2008, but probably not before values had fallen a further 5-10%.
One of the biggest risks to this outlook, however, is the ability of banks to refinance loans, he suggested.
"If banks are reluctant to refinance loans this could have a further detrimental impact on values" and could bring about the arrival of forced sellers, he said.
And when asked to quantify this risk, Martin suggested it was no longer "negligible" but rather moving into "amber territory".
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