Real estate investment trusts (REIT) may be about to rebound, but the sector will have to win over investors' confidence lost during the downturn, the Centre for Investment Education (CIE) 2009 Real Estate Conference has been told.
"Today, funds are becoming more discerning over property-related investments. There has been a slow move back to basics with investment in direct property, so REITs will have to work hard to get investor confidence back - in part because the supposed defensive nature of property had been found wanting during the market turmoil," CIE managing director Frank Gullone said.
In particular, REITs would now find it more difficult to attract a portfolio allocation when pitted against other asset classes due to their valuation process and their illiquid nature, Gullone said.
"The preference, however, will be for a simple and lower-risk model," he said.
In particular, REITs would have to reassess the fee structures that had been employed to date and the relevant governance issues involved.
"There was a consensus about the need to come up with new benchmarks to assess property investments and the managers that promote them," Gullone said.
Furthermore, several factors have been identified as a result of the economic downturn as things to avoid when looking at real estate investments. These include complicated structures, high leverage, weak tenants and debt that is close to maturity.
In regard to sectors presenting opportunities, CIE identified Australian rural property as being the most lucrative due to the world's increasing demand for biofuels.
Supporting this view were CIE figures that showed the top 25 per cent of farms generated returns of 6.6 per cent above annualised inflation.
