Property worthwhile, but far from stellar
The days of stellar property returns are over, but returns are still in positive territory, claims a property funds manager.
APN Funds Management director of retail Mike Doble said property returns were lower than the highs of five to 10 years ago.
“With the substantial capital growth in the value of property and property securities in recent years, the yields or income returns on new property investments are much lower than they once were,” he said.
“Therefore, fund managers and investors have to be even more selective about how to source quality and relatively high income returns from property.”
Doble said the UBS Global Property Index yield is just 3 per cent, but most property managers were looking to outperform as investors would not accept these returns.
“No investor complains about receiving significant capital growth, as produced by the global property securities markets during the last 12 months. But when capital growth declines, you need to ensure those income returns that remain are attractive,” he said.
“We prefer to target higher income returns at about 6 per cent, even if it means foregoing some capital growth, because our investors need consistent and sustainable income.”
Doble said property was still one of the best income returning asset classes, but investors should forget funds delivering the returns of 10 years ago.
This was particularly true with listed property trusts (LPTs), which now increasingly resemble equities as they take on more risk regarding leverage and corporate earnings.
“While the risk profile of LPTs has changed, the fundamentals have stayed the same,” he said.
“A diversified portfolio can produce substantial, steady income, even when capital growth has diminished.”
Doble said the solution for investors was to target property managers who have a focus on income rather than total returns and have a diversified portfolio of listed, unlisted and direct property securities in both local and overseas markets.
Recommended for you
Retailisation of private markets such as evergreen funds may seem like appealing options for wholesale and retail investors, but providers risk undermining trust if their products are unclear.
Ethical investment manager Australian Ethical has seen its funds under management rise by a third over FY25 to close out the year at $13.9 billion.
BlackRock Australia’s head of intermediary distribution James Waterworth has taken up a new distribution role at an alternative asset manager, while Antipodes has hired a distribution director.
BlackRock’s iShares ETFs have reported a record first half for inflows, gaining US$192 billion in the past six months, to see overall ETF assets under management rise to US$4.7 trillion as it launches its first active ETF in Australia.
