Diversification important within property
Investors need to add an international property fund to their portfolio to achieve diversity in this asset class.
“By adding a third arm to the property asset class, the investor is benefiting from the shift to global property,” said APN Funds Management director of retail Mike Doble.
The reason for diversification is accepted in other asset classes, and it is time to do the same in property.”
Traditionally, investors have picked Australian fund managers investing in local listed property trusts (LPTs) and then added direct property. However, Doble believes funds that invest in international real estate investment trusts (REITs) need to be that third arm for diversification and greater returns.
The push for international property investing has been created, in part, by Australian property managers being unable to secure local assets.
“The problem with buying property in Australia is 60 per cent of all institutional grade (property) assets are institutionalised,” he said.
“In Japan, only 13 per cent is, so the opportunities are greater overseas.”
Doble said overseas markets are just starting the property trust asset class, and while some early overseas REITs have been problematic, the quality of the products being offered has greatly improved.
“We have seen the REIT market become very transparent, and the quality of the assets are generally good,” he said.
“There are substantial prospects for investors where, globally, Australia accounts for only 2 per cent of the investment trust market.”
The Australian LPT market now has more than 40 per cent of properties located offshore, with most in the US market, but Doble argues global property is greater than just one market. Last year, 75 per cent of capital raised by Australian LPTs was for purchasing overseas property.
“Diversification by country and by sector offers protection and can provide strong, risk adjusted total returns,” Doble said
“More countries are adopting the REIT structure, which will continue to provide more opportunities in regions such as Europe and Asia.”
He said markets such as Europe are substantial in size, but are immature when it comes to securitised property markets.
“In many ways, countries like Germany are going through what Australia [went through] in the early 1990s post recession, now recognising the need to have more flexible, diversified and liquid property investments,” Doble said.
“Australians are in the box seat to take advantage of these opportunities given our track record in a sophisticated property market.”
ARN launched a global version of its successful Property for Income Fund in 2004, which aims to deliver high and stable income returns.
Doble said that while the global property investment universe is on the rise, the property investing paradigm has not changed.
“Income returns from property remain our key focus, and that methodology has served us very well over a long period, whether we are investing in Australian LPTs, Japanese office REITs or Spanish retail,” he said.
Currently, APN has more than $4.5 billion of funds under management.
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