Expectations of reduced returns from Australian listed property compared with previous years have fuelled greater interest in global and hybrid property investment products, a sector review has found.
Lonsec’s 2005-06 sector review of Australian property securities funds forecast a 10 to 12 per cent return for the sector for the 2007 financial year, compared with the heady returns of 18.1 per cent for 2006.
According to Lonsec senior investment analyst (property and infrastructure) Pete Morrissey, value opportunities in the listed property trust (LPT) sector were becoming harder to find.
“There are fewer opportunities; it’s a very mature and well-covered sector, and relative to other markets the mispricing opportunities are few and far between,” he said.
However, he pointed out that the sector remained attractive relative to other asset classes, with long-term performance of listed property still ahead of the broader Australian equities market.
Australia was the “world’s most securitised real estate market”, the report said, with heavy consolidation whittling the sector down to just 30 stocks — five of these making up over 65 per cent of the sector by market capitalisation.
Fund managers thus increasingly sought diversification via non-index exposure to areas such as infrastructure and international property securities.
While the report predicts growth in the global sector as Asian and European countries continue to adopt the securitisation model, Morrissey warned fund managers against jumping in prematurely.
“If managers are looking to have non-index offer share components they should not attempt to do so without having a background or capability,” he said.
“They have got to have global teams in place, as it can take a while to understand the drivers of these other markets.”
Morrissey also noted the growing popularity of hybrid investment products, which combine listed and direct property components, to combat concerns over growing levels of risk in the LPT sector.
The report also reviewed 15 funds on qualitative and quantitative factors, with UBS Property Securities Fund and Credit Suisse Property Fund earning the top ‘highly recommended’ rating.
According to Morrissey, respected fund managers and strong underlying processes were the key differentiators for the top rating funds.
