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Property stocks: Where to from here?

As an investor, your perspective can really depend on where you are standing. Investors standing in the residential property sector are likely to be looking at quite a different scene to those in the commercial property sector.

Residential

If you are standing in the suburbs of Perth, which was recently voted the most expensive city in the southern hemisphere according to website Numbeo, then you might take a positive perspective on companies leveraged to the housing cycle.

Housing shortages continue to push prices, not just in Perth but in many parts of the country, however, at some point low interest rates (in theory) should have their effect and help kick off a sustained level of new home building. There are tentative signs that residential building levels are starting to increase. This should benefit companies such as Boral (ASX: BLD) and Brickworks (ASX: BKW).

Commercial

An article published this week in The Australian reported that real estate firm Jones Lang LaSalle believes office vacancy rates are at their highest levels since 1999. Double-digit vacancy rates are being recorded in all capital cities except Perth, which is at 7.9%. Brisbane is faring the worst with vacancy rates of 14.3%. This news is hardly surprising when investors consider the job losses and low business confidence readings being recorded across Australia.

Most of the major property firms have exposure to both commercial and residential property which offers them some protection. For firms such as Lend Lease (ASX: LLC), Stockland (ASX: SGP) and Mirvac (ASX: MGR) their commercial property divisions are likely to face headwinds in the short-term.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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