With 10-year bond yields averaging 3.65% over the past month and all-property initial yields at 7.7%, investors seem to be pricing property on the assumption that rental values in 10 years’ time will be virtually unchanged from today’s levels. While past experience suggests that this is too gloomy, it is by no means impossible. On balance, we feel that property is undervalued, but we do not yet feel that economic conditions merit a sharp contraction in the property/bond yield spread.
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