Leading industry researchers have called for changes to the direct property sector to match investor expectations on fees, diversification and liquidity.
The researchers made the calls during an address to the Australian Direct Property Industry Association (ADPIA) 7th annual conference in Melbourne yesterday.
Lonsec’s Kevin Prosser said changes were required to “address the growing demand for open-ended structures, which are gaining in popularity over traditional syndicates.
“Traditional unit trust-styled products add complexity and increase volatility … Today’s investors are looking for diversification and liquidity in their portfolios,” he said.
Prosser said managers should therefore “focus on total return and risk mitigation, which unlisted direct property investments might offer”.
He added direct property was now competing with other asset classes, such as infrastructure and hybrids, and that managers must provide constant returns by standing out from the crowd, as well as looking for income.
Managed Investment Assessment (MIA) director Anton Lawrence predicted there would be a “significant downturn in property within the next 10 years and when it occurs I suspect the whole industry will need to reinvent itself”.
He said managers would have to rethink their upfront fees and adopt defensive mechanism for currency and interest rates.
On a more optimistic note, Property Investment Research (PIR) head of research John Welch said even though property yields were down there was still scope for capital growth.
“Total returns offered by this sector are really good, compared to equities and even bonds.”
He said the direct property industry had increased by $4 billion last year to $17 billion assets under management.
Aegis Equities Research analyst Dinesh Pillutla said the key to success in the sector for managers was 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.
