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Listed property as at 30 November 2006

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The slightly lower bond yields in place in November made listed property returns more attractive on a relative basis and this contributed to a bidding up of listed property trust prices over the month. The Listed Property Trust Index was 5.3% higher over the month, with annual returns now reaching 32%.

ASX Listed Property Accumulation Index

As has been the case for industrial shares, the price of listed property securities has benefited from the increasingly active private equity funds. Speculation that private equity funds would look for acquisitions within the listed property sector was heightened last month following the purchase of the large US Equities Office Property Trust by US private equity firm Blackstone. Australian listed property prices rose in response to news of this deal.

Our view

The substantial rise in listed property prices over the past year has pushed the sector well into the overvaluation range. Currently yields, which are below the cash interest rate, do not provide sufficient return to compensate for the interest rate, property development and business management risks inherent in the sector. With private equity led speculation pushing prices even higher last month, we recommend a tactical underweight position to the sector.

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