Sharp but fairly short pain for property

Thus, the share prices of property companies rise and fall partly as a reflection of the skill of the management, then in relation to the asset value and income stream of the business in its own right and in relation to the overall buoyancy of the economy and volume of unlet space.

But share prices also reflect the attractiveness of the asset class relative to other investments in bonds, equities and other alternatives, which puts them at the centre of a permanent tug-of-war between local conditions and global investor sentiment.

In these days of world markets, a decision to switch from equities to property or vice versa can unleash tidal waves of money that swamp the fundamentals as they appear locally on the ground.

Something like this might have happened to UK property in the past year or so because the sector has been turned into a bombsite with almost everything of substance flattened or at least badly damaged.

Overall share prices are down, in many cases by 30% from their peaks, and even innovative moves such as that of Land Securities in breaking itself up are too much geared to the future to ignite passion to offset the current gloom. If the share prices are accurately forecasting the future, it promises to be grim indeed.

This is where the commercial property derivatives come in. Here too prices have fallen sharply in the past few months and are now trading at all-time lows but, that said, the derivative signal of mayhem to come is much less dramatic than that of the share prices.

Currently, the derivative market prediction is for a drop of 8% in total property returns over the next 12 months, a turnaround admittedly when compared with last March when the prediction was a rise of 6%, but a much more muted reaction than the stock market is forecasting.

In the 1970s financial crisis, whose similarities with the current credit crunch have been outlined here on several occasions, property did indeed fall in value by 30% and very nearly brought down the banking sector with it.

Banks are once again massively exposed to property, so we all have a huge interest in hoping things get nothing like as bad this time.

Interestingly, the professionals in the industry are also much more optimistic than the stock market. To some extent, they would be because no one gets to the top in property by being a pessimist, but they also draw comfort from the fact that the British economy remains buoyant and that, even with a lot of developments in the pipeline, there is much less significant overbuilding than in previous busts.

Luckily, the office blocks that could seriously tilt the balance towards oversupply - things like the Shard of Glass or the Walkie-Talkie building in the City - are far enough in the future to be deferred if necessary until conditions improve.

The second positive is that the financial sector now adjusts to setbacks far more quickly than it used to. In earlier timesit might take several years of gradual bear-market adjustment for prices to find a floor, but these days adjustment tends to be compressed into a few months of dramatic repricing.

On this basis, while the worst is not over, it is possible to look ahead a year or so to a time when prices will probably be perhaps 15% lower, but where activity is beginning to pick up again.

UK Coal's rich seam

UK Coal's shares have suffered along with the rest of the property sector. This might be understandable if it were a pure property company, but it is not.

Though the potential from the redevelopment of all those mining sites has attracted huge interest, hardly anything has been built yet. Indeed, the company has time on its side, and should be able to start its developments so that they coincide with the recovery in the cycle.

Today, it is the mining side of the business that deserves attention because the company announced its third new contract of recent weeks - this one with EDF - in which it becomes a committed long-term supplier of coal for UK power generation at current market prices.

The price is the key. For years, UK Coal has been trapped with long-term contracts struck when coal prices were rock bottom. Gradually they are being replaced at the vastly higher current price. Today's deal to supply power stations from Thoresby in Nottinghamshire is on its own worth about 20% of the market value of the company.