Key to the performance of the direct property sector will be the action of the banks, according to Becton’s new chief executive officer, Matthew Chun.
“If the banks are prepared to ride the storm, then direct property will succeed,” he said.
“But if they decide to sell out, then it will bring the whole sector down.”
But Chun doesn’t believe this will be the case, “as their exposure (to direct property) is too great”.
Speaking at the PortfolioConstruction Conference, Chun said direct property has so far avoided the volatility that has plagued the listed sector.
“Real estate investment trusts (REITs) are extremely volatile having delivered three negative returns in the past 20 years compared to direct property’s single negative period,” he said.
“Because of the illiquidity of direct property, people are long-term investors compared to the listed sector.”
Chun said the ability to move in and out of REITs creates volatility in that sector.
“The market prices in that illiquidity in direct property,” he said.
“In direct property, the investment grows by its income streams from rents.”
Because direct property is driven by supply and demand, Chun believes the fall in the REIT sector won’t spread.
“The conditions for direct property are different to what was happening in the early 1990s,” he said.
“There is not the oversupply of property as there was then and demand is still strong.”
In the office market, the national vacancy rate is below 5 per cent, which is seen as a healthy level.
Retail vacancies are between 2 and 4 per cent depending on the sub-sector and demand from the logistics industry is keeping up with the strong supply of industrial property.
“The economy is travelling well and the demand for direct property is still there,” Chun said.
“And we haven’t overbuilt like the last downturn.”
