Volatility sending investors back to unlisted property

Centuria Property Funds has seen a pickup in enquiries from financial planners over the past four months as an increase in volatility sends investors back to unlisted property, according to Centuria chief executive Jason Huljich.

With prices looking to have bottomed, investors can get decent returns with relatively low risk, Huljich said.

And with volatility in local and overseas equity markets expected to continue in the medium term, investors are rethinking their portfolios, he said. Deposit rates on the way down meant cash was also becoming less attractive.

Unlisted property provides a true diversifier and is less volatile than listed property investments such as Australian real estate investment trusts (A-REITs), Huljich said.

He compared long-term A-REIT figures with the Mercer Unlisted Property Index to show that unlisted property has produced better returns with less volatility over five, 10 and 25 years.

Unlisted property is also not prone to panicked sell-offs like those seen in share markets during market downturns. It has the advantage of providing the option to extend the fund at its conclusion if the market is low, allowing values to return, Huljich said. 

Data shows that once property is listed it begins to exhibit the characteristics of equities, becoming subject to the vagaries of the market and investor sentiment and showing a high correlation to the equities market, he said.

"Unlisted property, on the other hand, is not tied to the index and can be expected to perform according to more reliable factors such as the quality of the asset and its management," he said.

Unlisted property also benefits from direct management because the fund manager has direct control over factors such as maintenance, tenant mix and leasing terms, he said.

"Fundamentally, what it comes down to is that when markets are volatile, unpredictable and irrational, investors want some control. They don't want to be at the mercy of a volatile share index," he said.