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The low, long-term return of property has seen most corporations in Australia remove property from their balance sheets in the past 20 years, which has freed up capital to be employed in more productive ways. These assets have essentially been "securitised" and now sit within Australia's - now less vast - property trust sector.

Recognising returns were low and boring, the sector has geared itself to the hilt in an attempt to juice up returns. With the bursting of the credit bubble, the strategy has failed spectacularly.

One of the better-performing trusts in the sector has been FKP Property Group. Although it has fallen by 40 per cent from its peak late last year, it has outperformed the sector as a whole, which has fallen by more than 50 per cent from its peak in February last year. Is it now good value? We're not sure.

FKP's main attraction is its dominant position in the retirement living market. It owns 6100 units, has a further 1250 in development and manages 1500 in a joint venture with Macquarie Bank. This division will be a low-risk source of income for years into the future. But it won't necessarily deliver higher returns than any other form of property. The division may be a growth story but it's still capital-intensive.

The outlook FKP also has a development and funds management division which is lighter on the capital but much more susceptible to the mood of the market. Right now, the market is tough in these areas. Property prices (and therefore development profits) are under pressure from higher interest rates and a slowing economy, and rising costs are not helping matters.

Also, property revaluations have previously provided a boost to accounting profits. This benefit should unwind in the next few years as revaluations begin to bite.

All in all, we expect a return to normality for the property market. This means a large part of FKP's property base will generate low, boring returns, with some added spice to come from the development and funds management arm - in the good times.

Price As the accompanying chart shows, FKP performed well during the credit boom years, rising from about $2.50 to $7.50 at peak. Reality has since struck and the stock fell to $2.50 in the panic selling in March. A $5 bid from Lend Lease (quickly rejected) saw the stock rise temporarily. But FKP now trades under $4.50.

Worth buying? We think not. Today's prices could turn out to be cheap but we'd rather not risk finding out otherwise. We think the outlook for property has fundamentally changed. Businesses boosted by revaluation income will no longer be able to grow their balance sheet equity so easily, which will then make borrowing against that equity more difficult. One look at past cash-flow statements makes you realise that FKP has relied heavily on borrowing to make up for its operating cash outflows.