Property can still deliver
Despite the doom and gloom of Australian listed property, some sectors will still deliver good returns due to fundamentals being solid.
APN Funds Management head of investments Michael Doble cites the office sector as a good example where demand is pushing down vacancy rates in most Australian capital cities.
According to the Property Council’s office report in January, Melbourne CBD vacancy rates have dropped to 4.4 per cent.
This has kept rents buoyant and the sector is in a lot better shape than the last crisis of the early 90s, when the unlisted property trust market collapsed.
“The office sector shows that we are poles apart from the 1990s when vacancy rates skyrocketed,” he said.
“Cash flows are coming from a solid underpinning of income from property investments that should be sustainable.
“There are still expectations of rental growth across the retail, office and industrial property sectors.”
Doble said it was unfair to judge the property sector on the past three months’ performance and the problems of some managers was liquidity, not properties.
“Property is best judged over five to 10 years,” he said.
“What we are experiencing is a liquidity crisis, not a property crisis.
“It is about capital management rather than the underlying property, rents or tenants.”
However, if the downturn in the Australian economy turns into a long recession, then property won’t escape a serious markdown.
“Unless we have a deep, long recession, we know that property offers a strong defensive element to a portfolio,” Doble said.
“During a recession it is the broader equity market that is harder hit, with unlisted property securities and direct property funds providing stability.”
He believed it was time for investors to re-focus on rental income and property management skills to pick the stronger performers in the sector.
“We think there will be a renewed focus on sustainable rental streams, which is overdue,” he said.
“Risk management and a track record for identifying value are also particularly important.”
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
