Getting in on the ground floor
Investing in property has proved successful for many investors. Over the last ten years Australian listed property trusts (LPTs) have returned 15.8% per annum. Australia has led the way in developing property trusts that invest in large assets such as offices, shopping centres, hotels and industrial estates.
For investors, LPTs have provided regular income often around 6% to 9% per annum with significant capital appreciation. For companies and governments, LPTs allow them to release capital tied up in real estate and lease the properties they require. They have been able to use the money more effectively to service their customers or build their businesses.
In Australia about 60% of suitable property is ‘securitised’ in this way and there is limited scope for LPTs to expand further.
New opportunities
Property trusts have been slow to catch on in many overseas countries. Real Estate Investment Trusts (REITs) has been used in the USA for many years and has been introduced in other developed economies such as France, Hong Kong, Japan, Netherlands, Belgium and Singapore. However, coverage is low with only 12% of properties in REITs in USA and 8% in Japan.
REITs were launched in UK and Germany from January 2007 and other European countries such as Italy, Spain and Finland are tipped to follow soon.
Investing in global property can provide access to wider opportunities because Australia represents only 12% of the investments in property trusts. It can also improve portfolio diversification because overseas REITs have a low correlation with Australian shares and property as well as to overseas shares and bonds.
Investing in property is not without risks and performance will depend on economic conditions in individual countries. Risk can be reduced by using a skilled local manager who can select quality property with reliable earnings and diversify across different countries. As with all overseas investments currency movement can magnify or reduce returns.
This is an opportunity worth considering. History has shown that significant asset appreciation occurs soon after properties are securitised.
Source: UBS Warburg
