Crystal ball gazing for 08

The secret of intelligent investing including income investing is sometimes to see beyond the here and now and go against the trend.

When everybody is telling you to sell, this can sometimes be the time to buy. In order to do this successfully investors sometimes have to look beyond the investment climate however stormy it might look.

Thinking of 08 one can only see dark clouds hiding possibly darker events for income investors. However, the events and the investments currently hardest hit could well turn out to be the best investments to hold.

I refer specifically to income generating property stocks. The FT this weekend had several articles about the prospect for income generating property shares. One highlighted the fact that the FTSE 350 Real Estate index has fallen a massive 43% in just 11 months. Some would argue it has further to fall. For instance the FT argues that in the property slump of the late 80's and early 90's the index fell 64% from it's peak in September 89 before bottoming out in September 92, therefore there are risks of buying in too early. However, the investment market is very different this time.

The economy is relatively strong with low unemployment and more importantly vacancy rates are low and there is not the over supply experienced in previous property booms. This means that as long as occupancy rates stay high then the income generating attractions of this asset class are strong.

So where next for income generating property stocks in 2008?
First of all. The credit crunch is biting. It's slowing investment. Economies such as the UK's which has been buoyed by consumer spending financed by cheap credit will slow in 2008. The Government and the Bank of England fearing a collapse in the housing market which would cause a melt down in the UK economy are likely to cut interest rates aggressively The Sunday Times has predicted that this could be done 4 times next year which would put the base rate at 4.5%. Falling interest rates suddenly stop making the returns on cash deposits look quite attractive. Suddenly the 8% plus income generated by some of the property stocks and share i have looked at start to look very attractive indeed, particularly when viewed against the already heavy discounts to asset values. Have a look at my previous article for some specific income generating property stocks to buy.

Appearance of property vulture funds in 08
I would expect to see in 08 the appearance of property vulture funds that are set up probably by hedge funds to fund the acquisition of property companies that are undervalued and/ or are having temporary funding problems because of the credit crunch. One likely victim would be Invesco Property Income Trust

Correction in property shares overdone
I am not alone in my view that the correction in property shares has been overdone. Anthony Bolton the widely respected fund manager was reported in the FT has started to buy property stocks, reportedly telling his special situations trust that there are discrepancies in valuations.

INCOME MONKEY VERDICT
I'm keeping the faith that i have expressed all along that there are some real income generating bargains amongst property shares if investors take a cautious and steady approach to buying. They should look to buy on weakness and average down where necessary. This is the approach i will continue to take into 2008. I'm confident that as the credit crunch unwinds, the economy cools and interest rates have fallen my investments in income generating property stocks will show a rebound in their capital value, a strong and growing dividend yield and look a damn sight more stable & attractive proposition than most other investments.

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