Are your clients over-exposed to property?

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Australians have a love affair with real estate, and a recent survey of 13 countries found Australia had the second-highest holdings of real estate investments, at 27% of their overall investment allocation. This is compared to 7% in the US and 17% in the UK.

CoreData’s latest Investor Equities Sentiment Index showed residential property as the asset class which respondents were happiest with, but Chris Smith of Australian Unity Investments says investors, especially those that own an investment property as well as their home, are over-exposed.

“Such investors are vulnerable in that they are overweight to residential property at the expense of other property sectors which are currently performing much better…

“A better re-balancing would be to include a selection of property sectors as well as equities for both growth and defensive reasons,” says Smith.

A new portfolio X-Ray service from van Eyk, which dissects portfolios by categories including asset class, investment style and fund manager selection, has also shown an unintended bias in most portfolios towards particular market sectors.

“The results show that most portfolios require at least some adjustments and that it’s possible to reduce the level of risk without giving up performance or radically changing asset allocation,” said van Eyk head of asset consulting Jonathan Ramsay.

Close to a quarter of investors indicate that they do not have a good understanding of the income producing products available to them and 85% want their adviser to bring them more income opportunities.

Legg Mason head of Global Marketing Matt Schiffman says “when it comes to income generating investments, Australians may be better placed to diversify more strongly beyond real estate, and increase their allocation to equity investments that pay a high level of income, which may also provide them with the added advantages of dividend imputation."

Smith, from Australian Unity Investments, thinks that opportunities lie in different property sectors, and that an ageing population makes the healthcare sector very attractive. “There has been a recent burst of activity to build or rebuild medical infrastructure which is creating an additional need for support healthcare services such as consulting rooms and other specialist centres.”

  • Bobby Jobson on 20/03/2013 2:00:07 PM

    US and UK investors (in property) have had their 'Day of Reckoning'. Australian investors are still living in a bubble in the (naive) view that property never falls. They will receive a rude awakening one day, either by a short sharp loss that takes their breath away or (more likely) a very long, slow painful reversion to the mean, which unwinds the massive premium that has built up over thirty years. Any property investor or spruiker looks like a genius now, but have a look in US, UK, Spain, Ireland, Italy, even Germany and see what can happen when you let cockiness get in the way of common sense. Diversification is the only sensible course of action.

  • Innocent Observer on 20/03/2013 12:57:56 PM

    Of course investors are (seemingly) happier with the performance of residential property versus other asset classes. It's relatively illiquid and with the usual property spruik it is easy to apply a notional 10% p.a. to the ticketed price of your bricks and mortar! Of course the rhetoric is unfounded and wrong, but this doesn't stop people's perception. The solution isn't (necessarily) to diversify into other property sectors; the first step should be building some degree of financial literacy into all investors. Only then will the sales talk be differentiated from sensible advice. (in the meantime let's remember that they guys interviewed have their own KPIs to meet....bit like asking a fixed interest manager if you should invest in them)

  • Lloyd Thomas on 20/03/2013 12:40:29 PM

    Smith would do well to remember those investors that either had assets frozen or received forced payouts of only cents in the dollar by seeking diversification on the advice of they're adviser through managed or listed property investments. Direct property, residential or otherwise offers sufficient opportunity/diversification for my clients when combined with shares and cash and indeed protected them from the worst of the GFC and unscrupulous property trust operators.

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