Turning point imminent for real estate investment

Allocations to the sector likely to increase

Investor attitude towards real estate investment is reaching an imminent turning point, with allocations to the sector expected to increase.

Global investment manager Standard Life Investments expects high single nominal global returns over the next three to five years.

Standard Life Investments head of real estate research and strategy, Anne Breen, explained that although Australian government bonds are significantly higher than markets such as the US, UK and Germany, prime global office market yields offer a yield premium of 400 basis points on average.

"We believe that the pricing environment has changed and there is now more clarity on the outlook for many global markets. The argument for sustainable yield from real estate is well founded and investment opportunities are evolving in response to an altered landscape," Ms Breen said.

Although Australian real estate has been resilient compared to other western markets that faced a challenging year, Standard Life Investments Global Perspective research suggests that a turning point is imminent for the real estate sector.

"With the pricing relative to both government and corporate bond markets at historically attractive levels, a further trigger is the outlook for economic expansion and tenant activity," Ms Breen said.

"Combined with the growing pressure to invest in a shrinking pool of higher yielding assets, and diverse views over the path of inflation, we could very well be entering a period of increasing allocations to real estate," she said.

In other news on property investment, Australian Executor Trustees Limited (AET), part of the IOOF group, has launched limited recourse borrowing facilities in its AET small APRA fund (AET SAF) offering.

"We believe that investors will look more and more to invest in property within their super fund. The benefit of being able to set up the fund and the holding trust for free can potentially save investors thousands of dollars," AET Superannuation head of distribution David Storm said.

The launch of limited recourse borrowing within AET's SAF allows investors to establish a loan within their super fund to purchase a single asset, such as a property, while at the same time protecting all other assets within the small APRA fund.

Source: http://www.investordaily.com.au/cps/rde/xchg/id/style/15571.htm?rdeCOQ=SID-0A3D9632-650DAAF4