Property Company Gave a Quick Fix before Rumours of Rise in Interest Rates; BRITISH LAND: Buying Shares When They Were Trading at a Discount Paid off for a Short-Term Profit
Byline: Peter Sharkey
IT sometimes pays to be cynical. Readers may recall that during the run up to last year's General Election, interest rates miraculously fell, as they have done during the run-up to every other election since the war. The flipside of what appears to be perfectly acceptable political behaviour is that in every post-election period, interest rates have risen.
I wrote again at the end of the first week in January that we could expect to see an increase in interest rates later in the year. Earlier this week came the news that the relatively dull spectre of inflation, coupled with galloping consumer spending, would almost certainly lead to a rise in rates. Indeed, there is an expectation that base rates will be close on 5pc by September.
So what? Well, if you have a large mortgage or, worse still, have bought property specifically to rent it out, expect to be paying around 20pc more for the money you have borrowed.
It seemed apparent at the beginning of the year that the discount at which property companies were trading to their real asset value was ridiculous and well worth a short-term ride. When that expectation of higher interest rates became built into their share prices, it seemed a good time to ring the bell and get off the bus with a profit still intact.
My first investment of 2002 was in the third largest property company in the UK, British Land, when the price stood at 468p.
The company's annual report contains a certificate prepared by a firm of chartered surveyors that values the British Land portfolio at pounds 8bn. …