Property investing in volatile markets

Linden Toll

Investors risk being caught out in the current investment market storm if they fail to properly understand the impact equity markets have on the value of listed property investments, according to the Australian Direct Property Investment Association (ADPIA).

The association’s president, Linden Toll, said that in the past, listed property trusts (LPT) held low correlation to other asset classes, but that this was no longer the case.

Using the top five Australian Stock Exchange LPTs as an example (Westfield, GPT, Goodman, Stockland, and Mirvac), Toll said those companies accounted for more than 60 per cent of the overall value of the benchmark property index.

“However, these five are not straight-forward, rent collecting property trusts, but are active property developers and stapled securities,” he said.

“So because they are companies and not straight property investments they behave more like general equities than LPTs.

“Therefore at times their valuations can be based upon sentiment and not the net asset backing, management teams and tangible assets underpinning the investment, hence the recent volatility in the LPT sector.”

Alternatively, Toll recommended direct property, which he said could actually lower the total risk of an investment portfolio.

“When seeking capital preservation and income, investors should stick to property investments that offer strong fundamentals supported by solid valuations,” he said.

“These fundamentals include desirable location, long average lease durations to high quality tenants and realistic valuations.

“Additionally, ensure that your investment is in a diversified portfolio of assets, remember that office, retail and industrial assets have differing cycles and a combination of these reduces risk.”