It seems a long time since we said farewell to 2016 and the festivities of Christmas. Now we are fighting to keep up with our new and earnest fitness regimes. (How many “Fs” is that so far?) But most of all, we are on “forecast watch” (which is my first main “F”), desperately seeking that little spark of inspiration that will help direct us through the year ahead.
But really, what exactly is the point of forecasting, especially as last year’s political forecasts were so far off the mark? The two big forecasting bloopers were of course “B” and “T” (I can’t even bring myself to say the words). And despite all their news coverage, we are still none the wiser as to the actual future consequences of either.
To be truthful, St Bride’s forecasts last year were probably no better than anyone else’s. We couldn’t even get our sporting forecasts right, with just one out of our six predictions (USA Ryder Cup win) proving to be correct. So when I say we are expecting a “blackwash” at the hands of the New Zealanders in the British & Irish Lions tour in June, don’t go betting your ranch on it.
In the last paragraph, I have just fallen into the common trap of interchanging the word “forecast” with “prediction”. It could easily have been another synonym, such as “projection” or “prophesy”, or even “hunch” or “guess”. Forecasts are the big daddies of fortune-telling as they are predicated on mathematics. In a property context, that means quantitative and regression analysis. The weather and financial/economic markets are well suited to this approach. But as Michael Fish and most (honest) City economists would attest, forecasting is still as much an art as it is a science. So beware, particularly this year when there are likely to be more political and economic moving parts than usual, one man’s forecast may well prove to be no more accurate than another man’s gut feeling.
With this in mind, a couple of fascinating prophesies for 2017 have caught my attention. Firstly, according to Christian website Unsealed, the total eclipse of the sun over much of Europe and the US on 21 August will lead to the end of the world. Secondly, a fellow called Patrick Mugadza reckons that Robert Mugabe will die on 17 October. Somehow the two don’t quite square, unless of course the long-standing president of Zimbabwe plans to survive the apocalypse.
So whose property forecasts should you believe, if any? As far as I can see, Capital Economics is the most bullish at present (5% total return) while CBRE has been more cautious (1.1%). And the IPF Consensus last November was 1.3%. But frankly, who’s arguing over a few percentage points? The numbers hang largely on the strength of the economy, international capital flows, currency shifts and political intrigue, all of which are currently best measured by sticking one’s finger in the air.
So is this a signal for despair in the property investment market? Certainly not. And this is where the second “F” comes in: 4-5%, the net income from direct property. It looks positively exotic compared with 10-year gilts yielding around 1.4% pa and the dividend on equities (All Shares) of around 3.5% pa.
However, if you want capital growth too, you will probably have to whistle for it. On our Global Alliance monthly conference call a couple of days ago, everyone in the UK, US, Sydney and Hong Kong offices conceded that capital growth in 2017 is likely to be a rare commodity.
There is a third reason for nominating 2017 as the year of the “F”. If we are not careful, the blaring noise that will surround the UK/EU negotiations will generate a most unwelcome level of fear.
But, I agree with the words of Franklin D Roosevelt in his inaugural speech in March 1933 at the very depth of the Great Depression: “The only thing we have to fear is fear itself.” So let’s hope everyone will be able to keep all the political goings-on this year in perspective.
If you think I am being a bit harsh on the forecasting industry, you are probably right. But in my defence, it was my property fund management firm, back in 1993, that first published quantitatively calculated, total-return forecasts. And it was these forecasts that continue to be at the very heart of the success of our portfolio strategies.
Robert Houston is a partner at St Bride’s Managers
