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Wealthy investors expect to increase their asset allocation to property. Over the next two years, 35 per cent of respondents plan to increase the proportion of property in their portfolios (not including their primary residence), while 48 per cent plan to maintain their current allocations. The main reason that investors give for the increase is that they believe property offers better long-term prospects than other asset classes. Investors from the Gulf Co-operation Council (GCC) states and Canada are most likely to increase their allocations – increasing by an average of 4 percentage points – while Spain is the only country in which the average allocation to property is predicted to fall.
Some investors may already have extremely high exposure to property. Almost six out of ten investors from Spain, and just under 30 per cent of those from the UK and India, say that 50 per cent or more of their portfolios are in property. Allocation also tends to increase with wealth: among those respondents with £30m or more in assets, almost 40 per cent say that they have allocated more than half their portfolio to property.
Investors can see opportunities in the property market, but the scarcity of credit is constraining their options. Following a prolonged downturn in property markets around the world, high net worth investors are once again eyeing opportunities in the sector. Three out of four wealthy investors say that residential property is looking attractive, but 60 per cent of them say that tight credit conditions are preventing them from “taking the plunge”. Respondents are slightly less sanguine about opportunities in commercial property, with 68 per cent saying that they are keen to explore opportunities, but 73 per cent of them feel hampered by the high cost of borrowing.
There is growing confidence about the medium-term outlook for property, but prices may have further to fall in the near future. Although they recognise that current market conditions are throwing up significant investment opportunities, high net worth investors give a cautious assessment of the prospects for their own property portfolio. Just under half expect an increase in the overall value of their property investments over the next two years, while 29 per cent expect no change and 23 per cent expect a decrease. Investors from India, Canada and Singapore are most bullish about the future, while those from Spain are least optimistic. More broadly, there are doubts about the incipient recovery in property prices. Across the ten focus countries, fewer than half of respondents believe that prices have reached their lowest point in their own markets.
Outside their own countries of residence, most investors consider the US to be the most attractive property market. The US tops the list by some margin, while the UK ranks third. In both markets, there have been precipitous price falls, so investors may be reasoning that there are bargains to be had. However, there is also considerable interest in emerging investment destinations, such as China and India, which are second and fourth on the list respectively. The appeal of these countries is likely due to a belief that rapid economic growth and rising wealth will fuel demand for property and lead to capital gains and attractive yields over the long term.
Investors may be less dispassionate in their approach to managing property investments compared with other asset classes. An emotional attachment to bricks and mortar – often stemming from the central role that homes play in people’s lives but also due to factors like prestige and location – can mean that high net worth investors are often unwilling to sell property at short notice and, therefore, they may be less rigorous in measuring its performance as an asset class. Investors also may not be taking advantage of the diversification possibilities within property as an asset class. For example, just 29 per cent hold indirect property investments, such as mutual funds and real estate investment trusts, when these can offer a relatively liquid way to gain exposure to real property across a wide range of sub-sectors and markets.
A significantly greater proportion of women than men are keen on investing in property. When it comes to property, the survey reveals a striking variation in the attitudes of the two sexes. Nearly half the women surveyed say property is a less risky investment than stocks, whereas only 37 per cent of men agree with that view. Similarly, while 44 per cent of women find buying property more enjoyable than investing in other asset classes, just 28 per cent men feel the same way. Women also tend to favour investing directly in bricks and mortar more than men. While 34 per cent of men are likely to invest in property indirectly through a fund, only 14 per cent of women would prefer to go down that route.