David Vickers, senior portfolio manager for Russell Investments’ Multi-Asset Growth Strategy, points out that there are three key things for property, the outlook, valuations and then how you access it, which he suggests “can often be a bigger decision than whether or not to go into property”.
He adds: “Property in the past few years has been the bond proxy, as everyone was getting overly concerned at that stage about bond yields. People were switching into high yield equities, higher corporate credit, but property was a huge beneficiary because it is the closet of all the asset classes to bonds because it has an asset behind it, it has a rental yield and it has yields that are often comparable with government bonds or credit.”
This is demonstrated by the fact property entered the IMA’s top five best-selling sectors in July 2013 for the first time since June 2011, and stayed there in August, September, October and November, reaching net retail sales highs that were last seen in 2010.
However, investors seeking better returns are being pushed up the risk spectrum into secondary properties – those outside London – and beyond.
Mr Vickers explains: “People are forced up the risk spectrum because the returns on prime property are just not very attractive. If 3 per cent doesn’t meet your objective, you either don’t invest and wait or you try and find the return and you find that in higher risk areas. That should bring more than a small tone of caution to investors in what is a very illiquid asset class.”
While the fundamentals for property as an asset class seem to be improving, what do advisers think?
Aj Somal, chartered and certified financial planner at Aurora Financial Planning, says:
“Property is an area our clients already invest towards, as part of their diversified portfolios. Commercial property will usually represent roughly 3-5 per cent of a typical client’s portfolio. We would not be looking to increase this proportion for the foreseeable future.”
Joss Harwood, co-director of Eldon Financial Planning, says:
“Our client portfolios include a small element of commercial property via collective funds as a diversifier. We don’t take decisions about which sectors will or won’t do well in any given period; we remain invested throughout in asset allocated portfolios positioned with regards to clients’ tolerance, capacity for, and need for, risk.”
Patrick Connolly, certified financial planner at Chase de Vere, says: