Property as an asset class has been out of favour for some time in the wake of the financial crisis, but with property delivering close to double-digit returns across most markets, could it be time to reconsider this black sheep?
In terms of total return, the global property sector has had a roller-coaster ride in the past five years, reaching a low in 2008 and 2009 with losses of -4.8 per cent and -6.9 per cent, respectively.
But while overall global property total returns have recovered, according to data from IPD Global Intel, the 8.4 per cent return in 2013 is still a long way from the pre-financial crisis highs of more than 14 per cent in 2005 and 2006.
The income returns from property, however, have remained much more stable in the past decade, with the income return from global property staying in excess of 5 per cent each year since 2004, according to data provided by IPD.
More appealing
With an income return in 2013 of 5.6 per cent at a time when interest rates in developed markets are at historic lows, property is looking more attractive as an income play.
In addition, the average global return of 8.4 per cent in the past four years provides reasonable capital growth, with the outlook appearing positive for a number of markets.
Property markets in the UK, US and Ireland have produced annualised double-digit returns for the second quarter of the year, according to IPD.
However, 13 countries in the IPD Global Property index – all of which are in Europe – experienced some sort of capital decline in 2014, with the worst offenders being Spain, Portugal and the Netherlands.
Asia outperforms
In contrast, property in Asian markets has outperformed Europe, although research shows China and Hong Kong have seen their property markets slow to 8 per cent and 7.3 per cent, respectively.
The report from IPD Global Intel notes the variations in performance reflect the shifting capital flows across property sectors and countries, as asset allocation decisions are implemented.
It notes: “The more volatile UK and US markets, as well as the commodity-oriented markets of Australia and Canada, contributed to stronger relative performance over recent years, while the markets in continental Europe (and the office sector in general) weighed on global performance.”
While there are some property markets that still have their issues and therefore increased volatility in returns, the income stream generated by this asset class should not be overlooked.
Nyree Stewart is features editor at Investment Adviser
