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With some major global property markets stabilising after significant falls in value, investors are considering whether now may be the right time to increase their allocation. In general, high net worth investors questioned for this survey plan a slight increase to their overall allocation to property over the next two years. On average, their allocation will increase from 28 per cent to 30 per cent. For those who plan to increase their allocation, the main reason cited is that they believe that property offers better long-term prospects than other asset classes. This suggests continuing uncertainty about the trajectory of financial assets and a desire for more tangible, straightforward investments after the turmoil of the financial crisis, which many people see as caused by complex financial instruments.
Which of the following factors have been most influential in determining your increased allocation to property?
It is also clear that investors perceive opportunities for bargains amidst the fall-out from the crisis. The belief that recent price falls mean that property is now undervalued is the second most important reason for increasing allocation to property. Nonetheless, experts say that investors have, in general, become much more discerning. “At the height of the bubble, many buyers lost sense of basic considerations: location, quality of building, reasonable financing and so on. However, today investors are very much more discerning: the property has to be exactly right,” says Yolande Barnes, Director of Research at Savills.
What do you expect to be the average percentage change in your property portfolio over the next two years?
There are over one million unsold new properties in Spain which will need to be cleared out prior to any recovery.
Breaking the survey results down by geography, there is a remarkable consistency of opinion, with investors from nine out of the ten countries expecting to increase their allocation by between 1 per cent and 4 per cent. The major exception to this trend is Spain, where the average allocation for investors will fall by 15 per cent, according the survey. More dramatically, perhaps, 13 per cent more Spanish investors intend to reduce their holdings of property to zero, taking the total with no exposure to the property market from 15 per cent to 28 per cent. This striking finding suggests a continuing lack of confidence in the Spanish property market, even after significant price falls. Asesores Financieros Internacionales (AFI), an analytical firm, forecasts that Spanish property prices will fall by 30 per cent from peak to trough and that the market will not turn positive until at least 2011.
A key reason for this gloomy forecast is a glut of supply. “There are over 1 million unsold new properties in Spain which will need to be cleared out prior to any recovery,” says Paul Bradley, a spokesperson for the Spanish Owners Property Guild. “That will take at least another three to four years. So the ideal time to return is just prior to these unsold properties being cleared out, when new development begins again.”