A low-risk approach follows lessons learnt

The level of debt is always at the forefront of anyone's mind. From the household budget, to buying an investment property, (being an office or a house) and as an investor.The net assets to the net liabilities is a figure that is closely scrutinised.It's also the main ratio that has been the cause of so much pain across the global economy.The people in the US who, in 2006 onwards, were offered loans at incredibly low interest rates, and took them up with relish.We now know them as subprime loans. They were the ones that consumers took up at 1 to 2 per cent for the first couple of years, only to have the reset values at 18 per cent.It's that fine print again.It was when the reset trigger was pulled that caused the problems and created the economic phenomenon of the subprime crisis.But in reality it was not much different from buying that couch interest-free for the first 18 months. The house can be furnished for free, I hear Gerry Harvey say.Well, not really, because after the 18 months is up, the interest rate clicks up to as much as 20 per cent.The same can be said for the commercial property world.It was the high gearing that brought the sector asunder.It was a time when the trusts and indeed the rest of the market, even down to the humble milk bar, geared up to buy more and more assets.Who cared about the loan repayments, when customers and assets were aplenty.The property trusts in the middle of the last decade all crowed that they were trading within their "normal" range of gearing at between 40-50 per cent.That's half the weekly budget in debt. Again, who cared when the share price was hitting new highs every day."Gear up" was the catchphrase. And the banks were happy to oblige, even though margins on the loans were at least 200 basis points higher than non-commercial borrowings.But when the subprime issue became a crisis, the debt world changed.High gearing is now banished.In the past two weeks of this reporting season, company directors have all gone to great lengths to tell investors gearing is under control.The average level is now closer to 20 per cent, some are marginally higher and others lower. It has been an issue that boards have focused on and a move that has been applauded by analysts and investors.Banks are still heavily exposed to commercial property but they are calmer than a year ago as more companies reduce their gearing.Ed Psaltis, the partner for property and construction at PKF Chartered Accountants & Business Advisers said the new benchmark for gearing in listed trusts is about 25 per cent."Conservative ...? Yes! This is what the investor wants at present. It is about 'back to the future', with low gearing and passive property investment returning reasonable returns at low risk levels," he said.Many will agree.