DSR Market Analysis – Getting Leverage in Real Estate

July 16, 2009 - PRLog -- Stocks, all other things being equal, are an investment leveraged to the value of their underlying product.

For any business, as the price that can be charged for a product rises, the profit margin rises disproportionately.

This is because there is always a fixed cost element to a company’s operational costs that acts as ballast on the negative side of the balance sheet, and when prices rise that company’s ‘disposable income’ ie profit available for re-investment and  paying dividends, rises very sharply as a % of turnover.

Of course, when the process goes into reverse, the effects can be devastating on share price. The price-time path of homebuilder Taylor Wimpey (TW) shows a devastating 2 year decline. However, the chart is showing further signs of bottoming.

British Land (BLND), like TW is largely an inventory-based conglomerate, whose core business needs no explanation. British land is what UK homebuilders build on.

How is BLND faring? Broadly speaking they have followed the same path as TW, While British Land is testing the lows of 2000, Taylor Wimpey is below the prices seen for the entire chart – apart from maybe the very lowest point of 1992. Over the longer term British Land has fared much the better.

In another essay I argued that the saying ‘Safe as Houses’ did not become an accepted paradigm overnight, but rather through many decades of real experience of fluctuating markets.

Meanwhile all the drivers are in place for a global search for quality.

The new paradigm is globalisation, and our children’s children will be living under a much more international if not uni-national political construct.

National boundaries will no longer be the impediment to movement they once were, and the search will be intensified for the best places on Earth, bidding up prices like old antiques at auctions. This would suggest that best way to take the long view of the property market is to invest in prime coastal and lakeside land.

Historically, building land does better than homes, just as BLND has held up better than TW. At the height of the boom UK houses with large gardens suitable for subdivision into smaller plots for building were selling for multiples of similar homes standing on just their own footprint.

Putting together the land and globalisation arguments, we think perhaps the best way to take the long view of asset appreciation in real estate is to invest in prime coastal and lakeside land worldwide.

DSR Asset Management Ltd has a select international land portfolio of properties in some of the best regions around the globe for growth, income and quality of life.

For more information about these and other investment property

http://www.davidstanleyredfern.com/

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Overseas emerging property market specialists, DSR offer invaluable and obligation-free advice to property investors