PREVIEW-UK REITs brace for coalition curbs on mkt revival

* Awaiting policy changes that could make or break recovery

* Land Secs, B.Land, Gt. Portland report FY results next wk

By Sinead Cruise

LONDON, May 13 (BestGrowthStock) – Britain’s coalition government
has given fresh cause for nerves about the sustainability of the
property market rebound just as a slew of UK property companies
were tentatively looking forward to the future.

Rental rises and asset mark-ups are seen as likely to make a
welcome return to the full-year results from the likes of Land
Securities (LAND.L: ) and British Land (BLND.L: ) next week.

Few property companies will be celebrating, however, until
the UK’s first coalition government since World War Two swaps
talk for action to shore up the indebted economy.

“With the initial uncertainty over the election outcome
over, the key challenge for the new coalition is to deal
effectively and decisively with the country’s fiscal deficit,”
said Guy Morrell, head of multimanager at HSBC Global Asset

“Failure to address structural imbalances would have severe
consequences for commercial property occupiers and investors
alike,” he told Reuters.

UK commercial property values have gained nearly 15 percent
after hitting the bottom of a two-year pricing slide in August
2009, restoring strength to bluechip investor balance sheets and
inspiring them to resume abandoned development

The risk of power struggles in the Conservative-Liberal
Democrat administration is weighing on UK property investors and
the most anxious will want reassurance that the recovery can
survive further bouts of political uncertainty likely to spill
into the third quarter.

“With most general fund managers apathetic-to-hostile to the
property sector amid the wider economic drama, Land Securities
and British Land are likely to focus on the positives,” real
estate analysts at KBC Peel Hunt said of next week’s results.

The consensus forecast for adjusted net asset value per
share stands at 692 pence for Land Securities, a company
spokesman said. Data gathered by analysts at JPMorgan put the
corresponding forecast for British Land at 468 pence.

Those positives might include continued demand for UK
property from recovery businesses and cash-rich buyers, but some
experts worry that possible spikes in capital gains taxes could
kill off investor interest when the market needs it most.

“Continued stability of the current 18 percent tax rate is
imperative in … securing a full recovery for the property
market,” said Stuart Law, chief executive of investment boutique

“Any exorbitant increase on the tax rate, with current
figures suggesting this could reach as high as 50 percent, will
only slow economic growth and scupper the government’s promise
to revitalise the markets,” Law said.

In the meantime, investors should brace for further
volatility in their stock prices in the near future, Nomura
property analyst Mike Prew warned.

“We have a new PM but we’re still guessing details in the
coalition policies and there remains the risk of another
election in 6-12 months,” said Prew, predicting a jumpy quoted
property sector until coalition rebels are mollified.

The quoted property sector (.FTELUK: ) has shed 3.15 percent
in the last five trading days, more than double the 1.4 percent
fall in the FTSE 100 (.FTSE: ).


New government policy could spark alterations in strategy
and affect the income London landlords like Great Portland
Estates (GPOR.L: ) collect from public sector occupiers, putting
pressure on future dividends and earnings.

The Conservatives are known to favour deep and rapid
spending cuts to jumpstart the economy, potentially heralding
faster public sector layoffs and a sharp fall in rental costs.

The coalition is seen to back existing plans to move
thousands of civil servants from expensive London offices to
cheaper regional space and developers may consider building
outside the capital if this cost-cutting drive is accelerated.

It is not just the swelling budget deficit and Britain’s
escalating debts that have spooked property investors.

Until the coalition beds in, some commentators also fear
companies will struggle to predict, or lobby for, policy changes
related to property taxation, planning or environmental building
regulations or even gauge how quickly state-backed banks might
purge their troubled real estate assets.

“Without a cast-iron mandate (the government) may find it
tough to take decisive action to solve the housing crisis or
deal with the 140 billion pound mountain of real estate owned by
the two public banks,” said Andrew Teacher, a spokesman for the
British Property Federation.

“Finding fast solutions to these problems is vital to the
broader economic recovery,” he added.

The rapid rebound in Britain’s property market has defied
grim economic fundamentals and wrong-footed even the most
optimistic economists. Investors can only hope the historic
coalition government gets down to business just as quickly.

(See for the global service for real
estate professionals from Reuters)

PREVIEW-UK REITs brace for coalition curbs on mkt revival