The long-term fundamentals remain strong for direct property despite turbulent economic times, according to the Australian Direct Property Investment Association (ADPIA).
The falling valuations currently affecting the Australian listed property market would impact the direct property market, but direct property managers were largely in a better position to withstand the current cycle, ADPIA president Linden Toll said.
Direct property investments were better equipped to weather the tough economic climate because of simplicity of structure, illiquidity and returns driven by income rather than sentiment, Toll said.
“There is no doubt our industry will suffer from the same forces affecting listed markets,” he said.
“However, low levels of liquidity, strong manager capability and the lack of other interposed operational structures, such as development arms, mean that direct property investments have greater capacity to withstand the storm.”
The simplicity of unlisted property investments would be of vital importance in withstanding difficult conditions, Toll said.
“The real estate investment trust market has evolved from simple property syndicates to complex stapled structures, often with large offshore exposures,” he said.
“Direct property investments, by contrast, are often based on single building syndicates with the return to investors stemming from yield, with some level of capital growth.
“Most investors in direct property have a long-term horizon. Although yield may be affected in the short- to medium-term, if investors have chosen quality assets with appropriate levels of gearing, then they should remain confident of the long-term viability of their investments.”
