DIRECT property has delivered better returns and less volatility than AREITs, which have been artificially feeding income, according to preliminary findings of the ADPIA Investment Report.
The report prepared by Atchison Consultants, show investors in direct property achieved a 9.8% return per annum over the past five years to June 09 compared to a negative 8.6% pa grown for AREITs.
Surprising the consumer driven retail property sector was the best performing market, over the five years it delivered returns of 10% pa followed by the office market of 9.6% pa and industrial with 8.1% pa.
And over the 10 year period direct property was also more favourable to AREITs which delivered a return of 2.1% pa compared to direct property’s 10.1% pa.
At the same time, direct property returns also carried a much lower level of volatility of 5% over five years compared to the highly liquid AREITs sector’s 21.8%.
The report’s author Atchison Consultants managing director Ken Atchison said liquidity has comes at high price for property investors.
“Around the world baby-boomer investors were seeking high levels of income.
“What this led to were complex listed property structures that were artificially feeding income through complex development and hedging structures rather than pure rental returns,” he added.
The report shows that during the boom times, prior the credit crunch, AREITs significantly outperformed direct property from June 89 to June 07.
At the peak of June 2007, AREITs had investment value returns were over $1 billion which today has crumbled to around $300 million.
Comparatively, direct investment value returns were around $400 million in June 2007 and today are above that figure at approximately $450 million.
Atchison said for a while AREITs produced strong returns.
“But what we now know is that these structures were unsustainable,” he added.
The most noticeable and worth performing AREIT was Centro Properties Group which had a volatility of 41% compared to CFS Retail Property Trust’s 14%.
Australian Property Journal
