AREITs, industrial sector to stay buoyant

Real estate will continue to benefit from a low interest rate environment as investors increasingly turn away from cash and term deposits to chase higher-yielding assets, real estate wealth solutions provider Folkestone has said.

“Demand for both residential and non-residential assets should continue, and competition for both income-generating and development assets will remain high,” Folkestone managing director Greg Paramor said.

“Real estate across the board has given pretty reasonable returns.

“Importantly, direct property tends to ride through [market] cycles reasonably well.”

In particular, Paramor drew attention to industrial real estate as well positioned for growth.

“Industrial has been a very strong performer over the past five to 10 years, and the main reason for that has been a change in distribution and a need for more distribution in different centres,” he said.

“Also the pressure on industrial lands in different areas – particularly in Sydney – has caused value appreciation.

“I see industrial performing well in the next five years [as] it’s always been a low capital appreciation part of the market with strong yields.”

Paramor said yields had “obviously firmed like everything else over this period”, but believed there would continue to be “strong performance in well-located industrial [real estate]”.

But in their hunt for yield, investors should be careful not to overpay for assets, Paramor warned.

“Overall, we are expecting another solid year of housing market conditions and further capital gains, albeit at a more sustainable rate than what we have seen over 2014,” he said.

The Australian real estate investment trust (AREIT) sector was also expected to benefit from lower interest rates, Folkestone Maxim AREIT Securities Fund director Winston Sammut said, adding that this sector outperformed all other major asset classes including general equities in 2014.

“Despite the strong performance of AREITs in 2014, we expect AREITs to continue to provide investors with an attractive alternative to general equities in the year ahead,” he said.

“We also expect continued strong inflows into AREITs from global investors, given the lower Australian dollar and the relative yield premium.”

Labelling 2015 as a year for stock pickers, Sammut said AREIT performance would be based on how portfolios were managed to drive earnings in a low growth environment.


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