View from City Road: Soros calls UK property turn

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The Independent Online
Investors who have chased property shares up a third faster than the market since the start of the year may be disinclined to give George Soros the credit for spotting the turn. But if history is anything to go by, both he and his predecessors should have got their timing spot on.

Despite the recent outperformance, property shares are still only a whisker above their all-time low relative to the market - and, as the chart shows, it was some low. True, the excess of supply and the collapse in rents are much more severe than in the 1970s. Nor is there likely to be the sort of rampant inflation that bailed out the market in the 1970s. This cycle's debt-laden developers can expect no quick fixes. But average property yields are now standing at more than double equity yields and at least 1 percentage point above gilt yields. So the market was soon going to attract the attention of astute investors, particularly with short-term interest rates at a 20-year low.

In John Ritblat, British Land's chairman, Mr Soros is staying true to form. Like Tony Pidgley, chief executive of the Berkeley Group in which Quantum has a 3.2 per cent stake, Mr Ritblat is a trader, a wheeler-dealer, who prides himself in bucking the market. Although the market scoffs that he bought too early, then tried to atone for his error by constantly calling the turn, the pounds 900m of property that he has acquired since the end of 1989 is worth pounds 100m more today.

The high gearing has also been criticised but the interest bill is still covered more than one-and-a-half times by rental income. But the opportunities offered by the Soros deal and the rights issue will still be welcome, given that cash generated, before purchases and sales, was insufficient to cover fully the increased dividend.

The Soros fan club that has burgeoned since he bet against and then broke the Bank of England on Black Wednesday piled into British Land in his wake yesterday, just as it boosted Berkeley before and toyed with gold too. His following should guarantee that his investment performs in the short-term.

Although Mr Soros is far from infallible - he lost big bucks at the time of the 1987 stock market crash - he looks on solid ground in calling the UK property turn. Others should also gain by putting their money into property - and British Land is as good a place as any.

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