Investors question direct property valuations
Wednesday, 15 October 2008 11:50am
Criticism that some funds and their managers use supposedly artificial unlisted property valuations to bolster portfolio returns illustrates how different groups of investors have fundamentally contrasting views about how to interact with the property sector.
"Why on earth have we made an illiquid asset class liquid, just to get it to fit into platforms?" asked Linden Toll, president of the Australian Direct Property Association, at the PIR property investment conference.
"For funds under management growth," he said.
The disconnect between AREIT and direct property valuations may however be somewhat illusory, said Rod Leaver, global chief executive of Lend Lease Investment Management.
"Whether there truly is a disconnect between listed and unlisted markets remains to be seen," said Leaver as he explained that we won't know until real sales results, which have almost dried up in the current atrocious sales climate, start to be recorded.
The pressure for more realistic direct property valuations has pushed managers in the UK to value their properties every two weeks, said Leaver.
Direct property valuations are expected to come down in Australia, said Luke Hartigan, property analyst at Colonial First State.
"Until you get the space market being impacted, direct property valuations will stay high. But when space pricing impacts rents, direct property valuations will come off," he said.
Criticising funds holding up their direct property valuations may also miss the point because "if investors [have the intention to] hold direct property for 10 to 20 years then their valuations are reasonable. They will however be caught out if they re-value assets upwards continually in a downturn," said Ivor Ries, research director of EL&C Ballieu Stockbroking.
Alex Dunnin
