Head of portfolio management Ryan Banting said investing in direct property helps decrease the possibility of negative total returns.
“Recent research shows that a diversified growth portfolio with no exposure to direct property has an approximately 18 per cent chance of experiencing negative total returns, whereas one that contains a standard allocation of 10 per cent to direct property has an approximately 14 per cent chance of negative total returns,” he said.
“And the more direct property held within a portfolio, the lower the chance of negative total returns due to the stabilising effect of rental income.”
However, he noted that this effect does not apply to listed property due to its correlation with the broader share market.
In addition, Mr Banting said direct property could boost returns in a portfolio.
“As well as providing stable income returns of around seven to eight per cent, direct property also provides the opportunity for capital growth in the long term as rents are often inflation linked, resulting in increases to capital value.”
He suggested direct property’s owed its stability to its rental profile.
“This has resulted in less volatile income returns than AREITs, which have historically had a higher exposure to property developments, overseas markets and other volatile investments,” he said.
However, he warned investors direct property prices were only likely to increase in coming years as overseas interest remains strong.
“Australian investors who are considering investing in property shouldn’t hold off in the expectation that the flow of capital internationally will dry up,” he said.
