There are five main reasons for
allocating to overseas property:
1
To expand the opportunity set:
Whilst it is recognised that the UK is one of the most developed property investment markets in the world, it is still a relatively small component of the global universe at circa 10%. By investing overseas, an investor can choose a much broader opportunity set, from residential homes, hotels and shopping centres.
2To increase diversification:
Property market returns are influenced by local economic forces resulting from the interaction between local and cross border demand, local planning laws, local regional and national economic stability and growth and additional market forces rather than global macro trends.
3Return on investment:
The strategic objective for pension fund investment is to achieve consistent and rising income and capital growth returns. The new regime for pension fund investors allows overseas property as a recognised asset, and diversifying into overseas real estate creates a strategic balance and access to robust property markets outside the UK.
4Potential for enhanced long term returns:
A number of global property markets are predicted to deliver higher returns than the UK market over the next few years. The growth of property securities companies worldwide and the number of countries legislating to allow Real Estate Investment Trusts (REIT’s) is testament to the proposition that property is a long term performing asset class and should be a key component in any investors portfolio.
5The current cycle in the UK with rising interest rates and rental returns:
Which now lag behind the increasing values, is forcing investors to look further afield to economies which are at differing parts of that cycle and offer greater returns.