InvestmentsDec 3 2015

Residential to play bigger role in property funds: Cerulli

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Residential to play bigger role in property funds: Cerulli

More residential property is to find its way into funds because of London’s spiraling house prices, according to Cerulli Associates.

The average price of a London home has hit £500,000, doubling in the past 10 years, and the government’s attempts to respond to the housing shortage will lead to the increasing presence of residential mix in property funds.

Barbara Wall, Europe research director at Cerulli Associates, said that while most of the money in property funds is invested in commercial property, the correlation between commercial and residential is increasing.

She said: “Capital values will eventually stop rising.

“But the outlook for rents is more robust, and income will account for more of the average property’s funds returns, even if yields, at 2 per cent in some cases, don’t look attractive right now.”

Europe-wide, property funds, with assets under management of €145bn (£102bn), amount to less than 6 per cent that of equity funds.

Adviser view

Richard Ross, director of Norwich-based Chadwicks, said: “All the government’s policies have been aimed at the demand side and once we start seeing the supply side of the market going back to equilibrium buy-to-let won’t be the one-way bet it has been, so if we were seeing a property fund that was mixing commercial and residential I wouldn’t find that attractive.”