Property pushes its case: high yield, low volatility
Planners and investors should consider re-entering the property investment market, which is currently offering good levels of yield and capital value and now represents a less volatile total return investment profile than other asset classes, according to Australian Unity Investments (AUI) head of portfolio management Ryan Banting.
He said the case for investing in property had strengthened off the back of a widening yield differential and the ongoing low interest rate environment.
According to AUI, property capital values in the Australian property market have stabilised and yield is back to long-term averages, with the spread between property and Australian Government 10-year bonds at 310-550 basis points for prime assets.
"In this environment, we believe property represents a less volatile total return investment profile than other risk asset classes," Banting said.
In particular AUI found that there was strong local and overseas demand for office and healthcare properties which were currently delivering the highest returns in the commercial property sector.
Banting said the current low interest rate environment made property investments attractive for local investors, while currency depreciation did the same for foreign investors with large overseas pension funds attracted by higher yields, lower vacancy rates and the falling Australian dollar.
According to Banting, office property returns were around a long-term average of 10 per cent, with 7.5 per cent made up of income and the remainder made up of capital growth.
Healthcare also continued to deliver high total returns (after fees) of between 8.6 per cent and 12.3 per cent over one, three and five-year periods to June 2013.
AUI head of healthcare and retirement property Chris Smith said this trend would continue as the Australian population aged. It was more dependent on healthcare services, with non-cyclical demand for core medical services protecting the sector from external market shocks.
Recommended for you
Lonsec and SQM Research have highlighted manager selection as a crucial risk for financial advisers when it comes to private market investments, particularly due to the clear performance dispersion.
Macquarie Asset Management has indicated its desire to commit the fast-growing wealth business in Australia by divesting part of its public investment business to Japanese investment bank Nomura.
Australia’s “sophisticated” financial services industry is a magnet for offshore fund managers, according to a global firm.
The latest Morningstar asset manager survey believes ETF providers are likely to retain the market share they have gained from active managers.
