Australia’s top researchers have called for changes to the direct property investment sector to match investor expectations.
Addressing the Australian Direct Property Industry Association 7th annual conference, researchers including Atchison Consulting’s Ken Atchison, MIA’s Anton Lawrence, Lonsec’s Kevin Prosser, PIR’s John Welch and AEGIS’ Dinesh Pillutla debated key issues facing this sector, which has seen enormous growth in recent years.
Three key investor related themes emerged from this discussion – fees, diversification and need for liquidity.
Ken Atchison began the discussion by stating that investors should take note of risks associated with investing in property.
“It has been proven time and time again, that if you increase risk, it will increase returns. Investors need to add some risk to their portfolio as long as it’s managed properly. Therefore, the key issue that really stands out is – diversification of risk – for investors and the industry needs to understand this concept.”
Not surprisingly, Kevin Prosser stated that property investment structures are becoming complex and changes are required to address the growing demand for open ended structures which are gaining more popularity than the traditional syndicates.
Prosser added that investors today are looking for diversification and liquidity in their portfolios.
“Traditional unit trust styled products add complexity and increase volatility. Managers should focus on total return and risk mitigation, which unlisted direct property investments might offer,” Prosser said.
“The direct property sector must realise that it now competing with other asset classes like infrastructure and hybrids. It must focus not only income but also provide constant returns by standing out from the crowd,” he added.
Dinesh Pillutla believes the key to success for managers is to look for quality assets and quality leases.
“The direct property investment sector is not a gloom and doom scenario and it is still possible to find good quality assets,” he said.
PIR’s John Welch said the direct property industry increased by $4 billion last year and now has $17 billion of assets under management.
“Even though property yields are down, there is still scope for capital growth. Total returns offered by this sector are really good, compared to equities and even bonds,” he said.
Having recently returned from a visit to the U.S, both Anton Lawrence and John Welch pointed out that the Australian property funds management industry is far superior in skills, compliance and transparency vs a vs its counterparts in USA.
“Australians love property and we probably have one of the most developed REITs in the world,” Welch said.
However, Lawrence cautioned: “There will be a significant down turn in property and when it will occur, I suspect the whole industry will need to reinvent itself. In about ten years, property industry will change and managers will have to rethink their upfront fees. And fund managers will need to adopt defensive mechanism for currency and interest rates.”
Lawrence added that sector specialists should stick to their sectors and not cross over to other sectors or they must employ staff, with appropriate knowledge.
Propertyreview.com.au was the Media Partner for this year’s ADPIA conference.
By Nelson Yap
