Why to buy high yield property shares

Shares in property companies have taken a pounding to the extent that some are now paying a double digit yield. For some ideas of which income generating property shares have a look at previous posts.

The UK's economy is clearly going to hit the buffers in 08. Commercial property is overvalued probably in the order of 10-15% and this situation will unwind during the next year. However, the fundamentals of investing in property are still strong for income seeking investors. With discounts in some income generating property companies running at near 50% there is plenty of scope for a fall in the underlying value of their property assets and still for an income investor to buy property assets at a discount.

The good news for income seeking investors is that rental incomes on property is fairly secure and with no immediate signs of over supply that have characterised other property booms. Therefore whilst income investors are quite happy to take the 6% available on their building society accounts at the moment, income investors looking at this time next year may want to pay attention to HSBC's Chief Economist who warns that interest rates could fall to as low as 4.5% by the start of 09. This all means that the hefty 6%+ interest that depositors are obtaining now will be a thing of the past.

The same fate will not befall income generating property shares. In fact the opposite is likely to be the case, falling interest rates will be good for property companies cash flow meaning more cash to make dividend payments. Falling prices means rising yields for those companies who are still investing. This means that the net income from property is also on the rise.

Income investors should ride out the storm in the credit markets to secure a long-term rising income stream.