Real es­tate: Pam Walk­ley

With lo­cal prices fore­cast to fall, over­seas prop­erty looks promis­ing

Money Magazine Australia - - CON­TENTS -

Prop­erty in­vestors need to hold over­seas real es­tate if they want to be di­ver­si­fied and re­duce the risk that comes with only hav­ing do­mes­tic prop­erty in their port­fo­lio.

This ar­gu­ment has be­come more com­pelling, with many an­a­lysts pre­dict­ing that Syd­ney and Mel­bourne res­i­den­tial prices will fall over the next few years, per­haps quite sub­stan­tially.

In­vestors who have a res­i­den­tial prop­erty or two plus blue-chip shares, in­clud­ing the big banks, may have more eggs in one bas­ket than they think, says Chris Bedingfield, prin­ci­pal and port­fo­lio man­ager at Quay Global In­vestors, “es­pe­cially so since mort­gages are the bread and but­ter of the big banks’ busi­ness, ac­count­ing for about 60%”.

Last month we looked at lo­cal al­ter­na­tives to di­rect res­i­den­tial in­vest­ments but off­shore prop­erty is a much big­ger uni­verse. And for many just the thought of re­search­ing and buy­ing over­seas real es­tate di­rect is just too daunt­ing.

The good news is that it’s rel­a­tively easy to get into over­seas prop­erty through man­aged funds and mFunds. There is also one global real es­tate ex­change traded fund (ETF) – Dow Jones Global Real Es­tate – listed on the ASX. Over the year to April it re­turned 2.29% (in­dex 2.8%) and 12.04%pa over three years (12.5%). Re­searcher Morn­ingstar de­tails 60 global real es­tate eq­uity funds on its web­site (morn­ingstar.com.au).

A draw­back of man­aged funds is that you have to pay man­age­ment fees, so it’s im­por­tant to know how these af­fect your re­turns. Ide­ally, the fund or funds you choose will have af­ter-fee re­turns that beat sim­i­lar in­dex funds.

The at­trac­tions of ETFs in­clude low fees, an en­try cost of just $500 and good liq­uid­ity due to their ASX list­ing. A weak­ness is that the in­dices for global real es­tate have big shop­ping cen­tre compo- nent of around 25%-30%, says Bedingfield, who man­ages the Quay Global Real Es­tate Fund. Shop­ping cen­tres are suf­fer­ing from the rapid growth of on­line com­pe­ti­tion and in eco­nomic down­turns fall­ing re­tail sales im­pact the prof­itabil­ity of these as­sets, he says.

By con­trast, the Quay global fund has only 14.5% of its as­sets in re­tail. Es­tab­lished on July 30, 2014, it doesn’t have a long track record but Morn­ingstar lists it fourth when it comes to one-year per­for­mance to April 30. It fol­lows three funds from Res­o­lu­tion Cap­i­tal, which have been around for longer. Over the year it re­turned 7.5% af­ter all fees, bet­ter­ing its bench­mark (the FTSE EPRA/NAREIT De­vel­oped In­dex), which re­turned 3.28%. Over two years it re­turned 9.24%pa (bench­mark 4.47%).

The suc­cess is due to stick­ing to de­vel­oped mar­kets – 50.2% of its hold­ings are in the US, stay­ing clear of com­pa­nies that de­velop, and pick­ing op­por­tu­ni­ties based on de­mo­graph­ics, says Bedingfield. Health­care, in all its forms, is an ex­am­ple of this, and the fund has 9.5% of its as­sets in this sec­tor.

The “echo-boomers” – 20- to 34-year-olds who of­ten need to re­lo­cate for jobs – are a grow­ing de­mo­graphic, says Bedingfield, so apart­ments ac­count for 17.7% of the port­fo­lio. Grow­ing de­mand for stu­dent ac­com­mo­da­tion is also a theme the fund has tapped into, mak­ing up 6.5% of as­sets.

Res­o­lu­tion Cap­i­tal Prop­erty Se­cu­ri­ties Fund (WS), the top per­former in the year to April, ac­cord­ing to Morn­ingstar, re­turned 8.31% and 12.6%pa over three years. It mainly in­vests in global-listed real es­tate trusts and se­cu­ri­ties that de­rive most of their re­turns from rental in­come. It in­cludes of­fice build­ings, shop­ping cen­tres, in­dus­trial ware­houses, res­i­den­tial com­mu­ni­ties, ho­tels and health­care fa­cil­i­ties.

The min­i­mum in­vest­ment is $30,000, with a man­age­ment fee of 0.8% plus a per­for­mance fee of 0.2% when it beats its bench­mark (as for the Quay fund).

The Quay fund charges a man­age­ment fee of 0.9% and the min­i­mum in­vest­ment is $20,000. It also has an mFund ver­sion.

Pam Walk­ley, found­ing edi­tor of Money and for­mer prop­erty edi­tor with The Aus

tralian Fi­nan­cial Re­view, has hands-on ex­pe­ri­ence of buy­ing, build­ing, ren­o­vat­ing, sub­di­vid­ing and sell­ing prop­erty.

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