Unlisted property strong in March

Australian unlisted wholesale core property funds returned 2.1 per cent total return in March and have returned a total of 9.4 per cent over the past 12 months after gearing and fees, according to the Mercer/IPD Australian Pooled Property Fund Index (PPFI).

This is the first downward movement in 12-month returns since July 2010, after they peaked in January and February at 9.7 per cent, according to the index.

The average annual distribution yield for the wholesale core property sector as at March 2011 was 5.8 per cent, compared to the 10 year Australian Government bond rate of 7.9 per cent, according to Mercer and IPD.

“The March quarter return highlights that while the wholesale core property sector continues to deliver a positive total return, the unlisted property fund returns appear to have already reached the peak in the current property cycle,” said Anthony De Francesco, managing director of IPD in Australia and New Zealand.

“Underlying market drivers are still relatively weak as investment activity strengthens while remaining cautious.”

Annual returns in unlisted funds ranged from 4.5 per cent to 16.3 per cent with a median of 9.9 per cent, with returns fairly evenly distributed among sectors with a slight bias towards office exposure, according to the index.

Gearing across the wholesale core property fund sector averaged 15.5 per cent, down from 22 per cent 12 months earlier, in contrast to the Australian real estate investment trust sector where gearing levels are around 23 per cent, according to Mercer and IPD.