The volatility in the stockmarket is sending investors towards to the unlisted property sector, according to leading investment consultant Ken Atchison of Atchison Consultants.
Speaking at an investor briefing in Brisbane on ‘Property portfolio construction of the future’, hosted by the direct property funds management group Pentacle Property Funds Management, Atchison said due to falling domestic yields, investors were now seeking a range of alternative property investments that provided solid, long-term returns.
He added that unlisted commercial property investments are a lower risk asset class because the sector doest not fluctuate in the same way as other assets and also provide security.
Atchison said this has led investors to include this asset class in a well balanced investment portfolio, viewing it as an illiquid part of a portfolio.
“Analysis indicates that global property has greater diversification benefits in portfolios than both equities and fixed interest reflecting the local nature of property. Australia represents less than 2% of the global property investment universe. With the overseas listed property market at an estimated $US750 billion and the overseas direct property market estimated at $US5.9 trillion, Australian investors are already broadening their property portfolios by including overseas property.
“Unlisted overseas property is attractive as it currently offers yields which are 2% pa higher than some of the current domestic yields. However investors should ensure that overseas allocations are fully hedged to eliminate currency risk,” he added.
Atchison said exposure to property should be skewed towards unlisted direct property as opposed to listed property.
“Investors in listed property assets are subject to the volatility of the equity market and therefore have a different risk/return profile. Increasing the level of listed property increases the volatility significantly relative to unlisted property.
“Moving away from traditional domestic property sectors like commercial office, retail, industrial, another property sector that is attracting investors is the special opportunity/development sector,” he added.
Atchison said investors are considering a small and limited allocation to the special opportunity and development sectors for diversification and return enhancement. These include property investment opportunities arising from new community and transport infrastructure.
“It’s recommended that superannuation investors allocate up to 40% of their unlisted property exposure to unlisted overseas property and a further 10% to unlisted property special opportunity and development investments.
“I believe, given the current outlook, the defensive and diversification attributes of unlisted commercial property make it an important part in a balanced investment portfolio,” he concluded.
By Adam Parsons
