Property funds proving resilient

Richard Cruickshank

Despite challenging market conditions and severely restricted credit, the Australian property funds industry has grown by 18 per cent in the past year to reach a total $419 billion, with assets under management up $63 billion.

These are the findings of the latest sector survey by property research and ratings house Property Investment Research (PIR).

The survey results confirmed listed property trusts still hold the lion’s share of total gross assets under management (49 per cent).

PIR managing director Richard Cruickshank said survey results revealed the number of property funds is up 16.3 per cent to 1,043 — the first time Australia has had more than 1,000 property funds.

He said the sector’s momentum has been fuelled largely by the “extraordinary increase” in the number of real estate assets held by managers, which are up 41 per cent to 10,502 (a sharp increase on the 7 per cent increase in 2006-07). The number of international properties, however, fell 26 per cent (way down on 2006-07’s 75 per cent increase).

According to the survey, unlisted wholesale funds are the second largest sub-sector with a 19 per cent share. Assets under management are up 32 per cent on the previous year to $78 billion.

Unlisted retail funds added 40 per cent to reach $16.8 billion, slightly shy of the 53.3 per cent annual growth rate the sector has achieved since 2000.

In contrast, direct property syndicates’ assets under management dropped 2 per cent, which PIR associate director Dugald Higgins attributes to a growing preference for more active funds that provide greater liquidity and diversification benefits.

“The demise of the syndicate has been in evidence for four years and 2008 is no different,” he said.

Retail property securities and wholesale property securities both recorded reduced assets under management, of -17 per cent and -11 per cent respectively, in what PIR described as an “annus horribilis” for them.

Debt and mortgage funds grew by 6 per cent over the year, but fewer deposits, elevated redemptions and lower reinvestment rates are making life difficult for managers and PIR predicts many more will be forced to exit the marketplace before the credit crunch is over.