Investing in property – the big boys are starting to hurt badly

Another round of losses in the third quarter shows continuing weakness in the world's real estate markets. Although property investment in Singapore ticked up slightly in the third quarter, more bad news from major developers and property investment vehicles show continuing declines in prices, sales volumes and profitability. US luxury home builder Toll Brothers posted a Q3 loss of  $472.3 million, and GPT group in Sydney, Australia posted a US$995 million loss for the first half of the year.

Toll brothers CEO remained cautiously optimistic - apparently a drop in cancellation percentages was enough to persuade him of a future increase in strength of the markets.

Sydney-based GPT was equally optimistic, and the CEO, Michael Cameron saying, "The pace of the devaluation cycle, however, is slowing and values may stabilize in the near term."

GPT has already made two attempts to raise equity, and has written off it's stake in Babcock and Brown. Nevertheless, their staggering level of debt remains an issue.

Despite assurances that Australia's property market is in good health, the largest industrial property trust in the country, Goodman Group out of Melbourne,  also posted a rather large loss of US$941 million, after writing off slightly more than that in investment properties. Like GPT, Goodman is also heavily indebted and has undertaken a major effort to raise more capital.

Property funds across the world are writing off values at increasing levels. Multiplex European Property Fund reported a $149 million loss to June 30, with revenues down 36.5%. The fund said that the German budget would fall into deficit as the government tried to stimulate demand and continues with its policy of wage subsidies to limit unemployment. Interest rates were forecasted to remain low (currently 1%) and there might be some unorthodox policy measures to increase money supply. (printing more money). The ECB has limited it's money printing to just E60 billion so far, when it was forced to bail out Spain - buying Spanish covered bonds to prevent a collapse of the banking system in Spain where the banks are now the largest property owners in the country, following numerous "debt for equity swaps," with troubled developers. The amount of Spanish repossessions is quite stunning and many of them are unsaleable, as they are often in part-built developments that are unlikely to be finished any time soon.

But conditions are showing signs of stabilizing.