30 November 2009
Wealthy investors call bottom of the market with show of faith in property
Global investors remain loyal to property as an asset class says Barclays Wealth Insight report
- Report reveals renewed confidence in residential and commercial property
- Twice as many investors (35 per cent) set to increase property allocation than decrease (17 per cent) over next two years
- Investor perception of property as an undervalued asset class and belief in better returns than other asset classes
- Significant difference between property investment approach taken by men and women
- Barclays Wealth urges caution against property overexposure and stresses importance of diversification
Barclays Wealth, the leading global wealth manager, and the Economist Intelligence Unit have today (30th November 2009) published a new global report which for the first time since the start of the recession reveals wealthy investors' attitudes towards residential and commercial property investment.
Entitled 'Prospects for Property: On Solid Foundations?', the report is the tenth in the Barclays Wealth Insights series. Surveying more than 2,000 high net worth individuals across different markets globally, it demonstrates investors' loyalty to property as an asset class. In spite of the turmoil which has hit the sector, twice as many respondents (35 per cent) say they plan to increase their property allocation over the next two years, compared to those planning to decrease it over the next two years (17 per cent).
Furthermore, the report shows that this confidence is global, with investors in nine out of the ten largest markets surveyed planning to increase their allocation to property over the next two years. However, with the risk of a potentially slow recovery, Barclays Wealth urges investors to take a cautious approach to avoid overexposing themselves to property.
Rory Gilbert, Managing Director and Head of UK High Net Worth, UK & Ireland Private Bank at Barclays Wealth commented: "The tumble in property values has shaken even the most seasoned investors' confidence. Despite this, these findings suggest that investors believe we are approaching the beginning of the end of the downturn. It appears that those surveyed are prepared to not only exploit undervalued opportunities, but also to commit further to property over the next two years in the belief that they will benefit from favourable returns.
"However, whilst there seems to be a good deal of confidence emerging, investors should ensure that they don't over commit themselves, or concentrate their property portfolios too narrowly, whilst there is still a degree of volatility in the markets. Wider market data suggests that initial indications of recovery in property could be a false dawn, or the start of a slow upturn. The next 12 months will be crucial in getting a clearer idea of what the longer term property investment landscape will look like."
Michael Dicks, Managing Director and Head of Research at Barclays Wealth, points out that, "Even before these planned increased allocations towards property, survey respondents claimed to hold 28% of their portfolios in this asset class. This is significantly higher than we would recommend, suggesting a real need for people to consider diversifying their portfolios in order to reduce risk levels."
Long term prospects and undervalued opportunities
As well as revealing whether respondents would be increasing their allocation to property, the report also gauges their confidence in the sector. When asked about their general outlook towards residential property, 76 per cent said they believe that there are opportunities. Investors are also optimistic about commercial property, with 68 per cent feeling that there are opportunities available. Interestingly, respondents seemed to expect high rental returns from investing in residential property. According to Michael Dicks, this is unlikely to be forthcoming, as it is historically commercial property that has delivered higher rental returns.
The report sheds light on investors' motivations for choosing to increase their investment in property. The most common reason is the belief that property has better long-term prospects than other asset classes (25 per cent). This is followed by investors feeling that recent price falls have led to property being undervalued (23 per cent).
However, Michael Dicks cautions: "The respondents' belief that, as an asset class, property delivers high long-term returns, is very interesting, as it typically has not done so in the past - whether in risk-adjusted or 'real' terms."
Lands of opportunity?
International views are generally consistent, with investors from nine out of the ten countries expecting to increase their allocation by between one and four percentage points. Spain - where prices have fallen sharply but where an oversupply of property still remains - is the exception, where investors say the average allocation will fall by 15 percentage points. The most bullish investors were from the Gulf Co-operation Council states (GCC) and Canada. Respondents from these regions were most likely to increase their allocations, by an average of four percentage points.
The report reveals which regional property markets investors view as the most attractive outside their own domestic market. The US - where sub-prime mortgages were a key catalyst in sparking the wider recession - is deemed significantly more attractive than all other markets, with 16 per cent of respondents saying they anticipated the best returns there.
Behind the US, China and the UK (both seven per cent) are considered the next most popular places to invest in property. In the case of the US and UK, these findings can be attributed to the sharp price falls over the last few years, which in turn is prompting investors to look for opportunities in these markets.
Commenting on the willingness of respondents to consider investing outside their domestic markets, Michael Dicks said: "Whilst it is encouraging to see that some respondents are looking overseas, there is evidence in the report of 'home bias', when investors prefer to focus on the market they know best. However, diversification overseas is an important means of avoiding an excessively concentrated property portfolio."
Property, gender and friends and family
The report examines the distinct role gender plays when investing in property. Almost half (49 per cent) of the women surveyed consider property to be a less risky investment than stocks, compared with 37 per cent of men agreeing with that view.
In addition, women are much more likely to enjoy investing in property than men. 44 per cent say that they find buying property more enjoyable than investing in other asset classes whereas only 28 per cent of men feel the same way. 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 take this approach.
Rory Gilbert added: "The survey suggests that investors underestimate how straightforward it can be to find liquid forms of investment in both residential and commercial property, for example through REITs. Such vehicles are a useful means of providing diversification by geography and by sector."
Almost a third of men and women place significant importance on advice from their family and friends. Friends can be very influential on buying decisions, if not always from a financial perspective. The most popular sources of advice are property consultants closely followed by private banks/wealth managers.
For further information contact:
Cohn & Wolfe
Hannah Mercer +44 (0)20 7331 2359 / 07956 606 662
Neelam Banghard +44 (0)20 7331 5303 / 07919 594 116
James Pieslak +44 (0)20 7331 5309 / 07736 325 985
Will Spratt +44 (0)20 7331 2367 / 07947 427312
Barclays Wealth, Corporate Communications
Will Bowen +44 (0)20 7114 8434
Lucy Davidson +44 (0)20 7114 8947