Property trust sheds billions

After a meltdown in the nations $30 billion unlisted property trust sector, about 6 billion has been wiped from the value of mum and dad investments.

The Australian has reported that the losses stemming from tumbling commercial property values are expected to continue to balloon this year, with many investors trapped in frozen funds and unable to reduce the pain.

Kevin Prosser head of Lonsec property research has stated that many funds were yet to revalue their properties, but those funds that had already done so had recorded a 10 per cent decline. That 10 per cent drop translated to a fall in trust values of at least 20 per cent because it was compounded by the high debt levels at most trusts, typically above 50 per cent.

Mr. Prosser further added that a fair number of the funds were frozen to redemptions, but a number of people were on regular contributions, which just kept flowing in.

Commercial property values were likely to remain under pressure for at least one more year.

As reported by research group Morningstar the AMP Capital Care Property Fund and the Tankstream Property Investment Fund lost 25 per cent and 28 per cent of their value. The riskiest type of property funds are retail unlisted property funds aimed at so-called "mum and dad" investors because they typically went heavily into debt to boost returns.

Louis Christopher Adviser Edge head of property research stated that much of the fallout in the commercial property market was yet to be recorded by the unlisted funds because many were yet to publish revaluations for six months to December. A lot of unlisted property funds are behind the times in terms of their valuations he further added.

It is actually a very bad position for them to be in if the funds are not frozen. After a run on non-bank deposits was sparked by a federal Government move to guarantee bank deposits, more than 30 mortgage and property funds froze investment redemptions in October.

According to Dugald Higgins Property Investment Research associate director it was unlikely that the mortgage funds would unfreeze assets until investor sentiment in financial markets improved substantially, which would possibly not occur until at least next year.

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Published on February 2-th, 2009 in Property Investment
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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