Unlisted property funds outperform

Unlisted property funds outperform

14 September 2018

The unlisted property sector out-performed listed real estate trusts, direct property investments, fixed income, and cash investments during FY2018, reports the AFR.

Australia’s unlisted property sector returned 18.7 per cent, while local equities delivered 12.9 per cent, according to data from Zenith Investment Partners, MSCI, the Property Funds Association and the Property Council of Australia.

Unlisted property also outperformed listed property (9.7 per cent), fixed income (4 per cent) and cash (1.95 per cent).

Meanwhile, the direct property markets continued to perform strongly, delivering 11.7 per cent for the period; income returns were stable at 5.7 per cent.

Office markets have continued their strong run, delivering the highest level of capital growth at 8.7 per cent and total returns of 14.7 per cent.

MSCI vice president Mitchell McCallum said that the attractiveness of property is backed by relatively high yields compared to other asset classes, as well as stable and consistent income that mostly provides a natural hedge against inflation.

“We’re continuing to see interest in direct property from overseas investors due to the high income returns compared to those returns in other global gateway cities like London, New York and Tokyo.”

In February, the MSCI report showed unlisted property funds averaged total returns of 23.4 per cent for the 2017 calendar year. That return compared to the 7.7 per cent return delivered by Australian equities.

Australian Unity head of commercial property Mark Lumby said ongoing domestic uncertainty would continue to influence the market, but the outlook for unlisted property remained positive.

“While the detail is unknown for now, we’re anticipating one outcome from the Royal Commission will be the detangling of vertically integrated models which may create a more level playing field for non-bank aligned fund managers,” he said.

Mr Lumby said that the general consensus for interest rates was that they would remain stable for a period of time, increasing towards the back end of 2019.

“Looking forward, interest rates will rise for one of two reasons: to slow down a growing economy, in which case market rents will increase, supporting further capital growth in property or to rein in inflation, in which case, growth in property will be subdued or negative.”

Based on the latest Russell Investments and ASX long-term investing report, residential investment property (10.2%) was the top-performing asset class in the 20 years to December 2017.