Real estate attracts rich investors

They see better long-term returns from property than from stocks: survey

(EDINBURGH) Individuals with more than US$800,000 to invest plan to increase their property holdings because they foresee better long-term returns than from stocks and bonds, according to a Barclays plc global survey.

Twice as many people plan to raise their investment in commercial and residential property as intend to reduce it, the Barclays Wealth unit said in a statement yesterday.

The richer the individual, the greater the proportion of wealth is placed in real estate, the survey found.

'I was surprised how big a share of their wealth property represents,' Mike Dicks, the London-based head of research at Barclays Wealth, said in an interview. 'It's not what I would tell grandma. None of our data suggests that would be a good allocation.'

The global recession pushed down commercial and residential real estate prices in every region except Asia. The value of US shops, offices and warehouses fell 21 per cent in the first three quarters of this year, following a 12 per cent decline in 2008.

Belief that properties are now undervalued was the second most common reason cited for increasing investment.

Real estate investment among wealthy individuals is set to rise to 30 per cent of the average portfolio for the next few years from 28 per cent now, according to the survey. That excludes properties used as a principal residence.

Most rich people, other than the extremely wealthy, should have no more than 10 per cent of their assets in property, said Mr Dicks.

'An emotional attachment to bricks and mortar' can mean that rich investors are often unwilling to sell real estate at short notice and may be less rigorous in measuring its performance as an asset, according to the report.

Investors from Canada and the Persian Gulf were the most likely to increase their property allocations, with an average rise of 4 per cent, the report said.

Spain was the only country in the survey where more individuals said they would reduce the proportion of real estate investment, said the wealth management division of London-based Barclays. About 60 per cent of rich individuals in that country have more than half their assets in property.

Almost 30 per cent of British and Indian investors have more than half their wealth tied up in real estate.

About 40 per cent of the total respondents worth more than £pounds;30 million (S$68.4 million) have a similar allocation, Barclays Wealth said.

Three out of four investors surveyed said residential property is looking attractive and two-thirds are keen to explore investing in commercial real estate, the survey said. About 75 per cent said they feel hampered by borrowing costs.

The US was the most attractive real estate market for investors outside their home country, the survey showed. The country was seen as having the highest potential for return on investment.

Barclays Wealth surveyed 2,000 people. Forty per cent were worth £pounds;500,000 to £pounds;1 million.

An additional 40 per cent were worth between £pounds;1 million and £pounds;10 million. Ten per cent had assets of as much as £pounds;30 million and the rest were wealthier than that. -- Bloomberg

Source: Business Times, 1 Dec 2009