As govt 10 goes over 4.0% listed property stocks plummet even further
Argosy down 3%, Kiwi down 3% etc etc
AS expected .... and more to come I reckon
Dreaming of excess returns one day
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As govt 10 goes over 4.0% listed property stocks plummet even further
Argosy down 3%, Kiwi down 3% etc etc
AS expected .... and more to come I reckon
Dreaming of excess returns one day
Updated my trusty model of NPF v 10 year govt stocked - trusty because its has kept me out this sector for a while now - and share prices have tumbled
The 10 year rate still going up and share prices still going down ..... but listed property stocks are even more over priced than they were a month ago (based on my trusty model)
I hear your comments about markets being forward looking and interest rates are way ahead of themselves and they'll be coming down soon etc etc but at the end of the day share prices continue to fall
So I'll stick to what my trusty model says and stay out in the meantime ..... but dream of future riches some time ..... but maybe some time off yet
Worthy of a mid-week update after just 2 days trading:
- property stocks holding up slightly better than the NZX50
- Multiple names trading well over 30% discount to NTA, with ~35% NTA discounts (!) for IPL & KPG
- At least one Gross Yield now well over 7% (KPG - 7.4%)
- At least one bank now offering a 4% one year term deposit (SBS), with average rate for all banks sitting around 3.5%
Attachment 13900
Really more of these companies should be considering share buybacks at these levels. Private equity will be sniffing around as well if this continues.
Cheers for the regular updates.
I guess the table just shows that NTA's are so terrible backward looking, while share prices are made by forward looking markets.
Backward looking NTA's are interesting and used to be accurate, but they are only moderately relevant for the future.
Only question in my view - how cloudy is the crystal ball of the forward looking markets?
I suspect it is as cloudy as anybody elses. Market expects property prices (and with that) NTA's to fall. That's what your table clearly shows. Time will tell how right market expectations are. Normally they are wrong, but we never know in advance how wrong they are.
No worries - do the updates for my own benefit as well of course!
The asset values of these companies have all been going up over the last few months, supported by rising income from those assets, as all these companies increase rents in line with CPI increases. Outside of cap rate changes, The only way these assets start getting valued lower on a real world basis any time soon is if inflation suddenly stops or they suddenly start seeing rising vacancies (none of which is happening….yet - recession would be a different story!)
here is how i see this playing out. Over the next 2-3 years the average rents will increase ~15% total (spurred by inflation). Inflation is eventually brought under control and comes back down to 4% or less. At that point OCR/interest rates fall, and cap rates/yields on property assets return to pre-inflationary levels. But the increased rents will remain at the new level (and will continue to increase at 3-4% going forward). In the end we are left with significantly higher income and significantly higher valued assets.
of course I could be wrong and a deep prolonged recession would definitely hurt in the short/medium term. But a high interest rate / high inflationary environment is very different from a high interest rate / low inflation environment.
(note: I still wouldn’t be investing in any of the property names with sub 4.5% yields currently, but thats more to do with my own preferences)
As you say - yet.
Market seems to expect it though.
Interesting to study the great recession in Europe in the early thirties following the big bull run during the roaring 1920ķes. Plenty of unpaid rents and subsequent vacant offices and storage halls after a time of plenty.
Obviously - nobody knows, whether and how history will rhyme this time ... but markets seem to have an inkling.
Long bull run - tick;
World wide pandemic - tick;
Rising inflation - tick;
World war looming - tick;
Debts spiralling out of control - tick;
Drop of property values? Well, we don't know yet, but markets considering this option ... ?
Could well be the case, you never can know.
Thankfully our commercial property sector in NZ is nowhere near the same bubble territory as residential was/is. If I didn’t have relatives living in my residential investment property I would have sold up quite some time ago as the return on asset value is abysmal - I really don’t understand why anyone was buying residential investment properties over the last few years as it was all cashflow negative if financed at even just 60% gearing (just kidding - i know people were buying purely for capital gains).
Reserve Banks have more tools today to monitor economic information than in the 1930's.
They were flying blind in terms of knowing what there financial positions were and what their economies were actually doing.
The real question is what is QT going to do to the US market.
But commercial prop in NZ is highly defensive and the price of exports will surely be the number that prop's up the economy.
Governments often change in environments like this.
And business friendly policies will be promoted.
Since when has com prop been a short term trade? Not often.