It's become an accepted wisdom among investors to keep a close eye on bond yields as indicator of performance in the listed property sector.
That thinking was underlined in the second half of last year, when the long bond rally came to an end, with yields finally rising.
The effect on real estate investment trusts was immediate. Year-to-date returns peaked at 24 per cent by early August. The pullback was sharp. The sector fell as much as 19 per cent by November, before ending the year with a 13 per cent total return.
It was a harsh lesson and for many it only reinforced the correlation between the bond market and its apparent proxy, the REITs.
But Citi analyst Adrian Dark is happy to upend that thesis as investors scour the 2017 field for threats and opportunities.
He is well-placed to challenge the dominant paradigm. Mr Dark topped the list for the best stockpickers of 2016 compiled by the Thomson Reuters StarMine awards.
Mr Dark and colleague Suraj Nebhani tested the link between bond yields and REITs over the long term in research this week.
Contrary to what many investors may realise, REIT prices don't always rally as bond yields fall, and nor do REITs always fall as bond yields rise.
"We show that the bond yield/REIT performance relationship is far from stable over time, varying both in strength and direction," they wrote.
A more reliable guide for where property stocks head may be "cap" rates, the investment yields ascribed to underlying real estate held by property trusts.
"We see cap rates as being much more closely tied to the fundamental outlook for REITs than bond yields are," the Citi analysts wrote.
While some individual assets have traded more sharply, investment yields on prime property are averaging 5.76 per cent in Sydney and 5.5 per cent in Melbourne toward the end of 2016, according to Colliers International .
How much lower they can go is a hot topic among landlords and buyers in the direct market.
Over the past 30 years, Sydney office cap rates for landmark towers have bottomed at 5 per cent, according to Citi. That benchmark has been breached and the market is hitting record lows.
Mr Dark's view on where cap rates go from here is finely balanced.
"Transactional evidence suggests that the firming trend continues, but this is something we intend to watch closely over the course of the year.
"If we saw evidence that the cap rate cycle was turning, we would likely reassess our valuations and stock calls, potentially shifting to a more negative stance."
It's a high-powered theory with very practical implications.
In the latest round of revaluations landlords including Dexus and Investa booked higher valuations as cap rates squeezed a little tighter.
But if cap rates do turn, landlords who have sold off assets will be better placed.
That is one reason why Citi prefers shopping mall owner Vicinity Centres, which has undergone major divestment in favour of its $3 billion development pipeline.
Among the residential developers, Citi prefers Stockland, which has less exposure to the risky apartment market. And in the office market, Citi is wary of moderating demand despite recent strength and favours Investa over Dexus.
