Returns from unlisted property funds have dramatically outpaced those from listed property stocks, which have yet to recover from their wild ride into the red after the coronavirus pandemic struck.
Unlisted property funds withstood the June quarter economic downturn to deliver at 14.5 per cent return over the previous 12 months.
That result bettered the 13.5 per cent return unlisted funds delivered the previous year, according to data released by Zenith Investment Partners, Australian Unity, MSCI, the Property Funds Association and the Property Council of Australia in October.
It also stands in stark contrast to most of the share market which was ambushed by the COVID-19 pandemic. Particularly hard hit by the virus-led volatility were the Australian real estate investment trusts, which posted a negative 26.3 per cent return over the same period. The broader equities market fell 8.7 per cent.
For comparison, direct property narrowly held onto a positive performance delivering 1.4 per cent, while fixed income delivered 5.5 per cent and cash dipped to 1.0 per cent.
Dugald Higgins, Zenith’s head of real assets and listed strategies, said unlisted property funds had been relatively shielded so far from the effects of the economic slowdown due to their slower appraisal- based valuation cycle.
But as more assets were progressively revalued, returns in the sector were expected to soften as revisions to assumptions about vacancy rates, effective rents and capitalisation rates flowed through, he said.
“We are not through the unwinding,” he said.
“But for every asset where there are softer valuations, there will be some that will be higher. So it is difficult to make a call at the index level on which way it will go overall.”
Source: Unlisted funds beat property stocks through the crisis, by Nick Lenaghan, Financial Review