The property sector of the Irish stock market has historically been relatively small and indeed this is also true of many other stock markets.

The UK market has a small core of large property companies, such as British Land and Land Securities, that have been in existence for decades. In contrast, Irish-quoted property companies have had a more chequered history, with the rise and eventual fall from grace of Power Securities during the late 1980s/early 1990s being typical of the volatile record of Irish property companies.

Currently, there are only three property companies quoted on the Irish market - Dunloe Ewart, Green Property and Jermyn Investment. Dunloe is the subject of a management buyout (MBO) and seems almost certain to be taken private or to be broken up. Green Property apparently has had some tentative approaches regarding an MBO but nothing as of yet has been put to shareholders. Therefore, the almost total demise of the quoted Irish property sector could well be imminent.

The accompanying table highlights one of the key reasons why the sector seems set to go private, namely, that all of the companies' share prices are trading well below their respective net asset value. Green Property shares are trading at a 35 per cent discount to net asset value, while Jermyn is trading at a 40 per cent discount. Dunloe Ewart is now trading at a much smaller discount of less than 10 per cent. However, this is due to the fact that an MBO proposal has been on the table for some time. Furthermore, the share price has received a further fillip as the likelihood of a competing bid has emerged in recent weeks.

Historically, it has been the case that the shares of quoted property groups, both at home and abroad, typically trade at a discount to net asset value, presumably reflecting the development risk associated with the portfolios of most property companies. However, the size of this average discount to net asset value that has emerged in recent years is unprecedented. It does seem as if property shares are also suffering from the general shift by institutions out of small capitalisation stocks into international blue chips.

Also, institutional investors always have the option of investing directly in property and therefore do not need to purchase shares in quoted property groups.

Green Property is the largest of the Irish-quoted property groups. Green's portfolio is split evenly between Ireland and the UK and currently 14 per cent of the portfolio is tied up in development projects. Green should continue to benefit from the booming Irish property market and the improving UK market. Current broker forecasts are that Green can grow its net asset value by 14 per cent per annum over the next three years.

Worries about overheating in the Irish property market are holding the share price back, but any significant weakness in the share price would almost certainly lead to a revival in moves towards an MBO.

The share price performance of these companies has been quite good this year with both Green and Jermyn rising by more than 20 per cent. Despite fears of overheating in the Irish economy, the odds seem high that ongoing strength in both the Irish and UK property markets will underpin underlying net asset values. Furthermore, the large discount in share prices to estimated net asset values is unsustainable in the long term. Either the discount will narrow through rising share prices or the persistence of the low share price will elicit management buyouts or bids from third parties.