The Investment Column: Property sector a Budget winner

The property and building sectors were moving in different directions yesterday as investors reacted to Wednesday's Budget. The general view was that the changes announced by the Chancellor, Gordon Brown, were almost unalloyed good news for property companies, but less good for construction and building materials shares. So while Land Securities, one of the UK's biggest property groups, basked as its shares rocketed up 53p to 924.5p, RMC, a big aggregates producer, was in the doldrums, drooping 37p to 934p.

As the share price charts show, part of yesterday's reaction merely reflects relief that analysts' worst fears were not realised. Wild rumours have been running around the property sector since the beginning of June that stamp duty was about to rise from 1 per cent to as much as 6 per cent. As it happened, the graduated 1.5 and 2.0 per cent bands announced will raise property transaction costs from 2.75 per cent to a maximum 3.75 per cent.

More importantly, the decision to abolish institutional tax credits is being seen by analysts as likely to redirect large amounts of City money into the property sector. Even before the Budget, survey evidence suggested more than pounds 3bn of institutional funds were seeking a home in the property market. The argument now runs that, with the yield on the FT All Share index in effect dropping from 3.5 to 2.8 per cent, the average initial yield of 7.9 per cent on direct property investment looks even more attractive.

Of course, property companies' dividends will be caught up in the ACT backdraft, but if institutional cash starts flowing into the sector, property values will inevitably rise. Companies with quality assets in London and the South-east, such as British Land and Brixton Estates, should do well as a result, although observers underline the need for selection. Those who want a more direct stake in the commercial property market should look at unit-linked pooled investment funds, although liquidity can be a problem.

Fears of a "gravel tax" hit aggregates producers such as RMC, Redland and Tarmac, but until the details of any Government move are known, the share price falls are just shots in the dark.

Elsewhere, observers poured scorn on the Chancellor's rhetoric about the threat from an overheating housing market, suggesting the stamp duty changes and the cut in mortgage interest relief from 15 to 10 per cent next year will do little to dampen demand. Kevin Cammack of Merrill Lynch called such measures "utterly futile".

Investors are advised to await the outcome of next week's Bank of England monetary policy committee before committing large sums to the market.