Hi,
I'm currently studying property development in Sydney and i've been given an assignment regarding investing in reit's/lpt's.. Since I'm VERY new to this stuff and i don't have the biggest understanding for this, i thought i could ask someone here for advice..The assignment is as follows:
$500M AUS is to be invested in ONLY real estate securities. The time horizon is a minimum of 10 years. Expected average annual return is inflation +8% (ca. 11%). Investor is risk tolerant with a capital growth focus.Develop a diversified portfolio explaining only what sector(s) to invest in and weighting (e.g. retail, industry, residential and so on). Do not recommend individual securities(!).
What I've figured out is that this demands "a bit" of understanding of the australian property market and, maybe most important, the future property market…
My thoughts (correct me if i'm wrong):
We've seen over the last 10 years that the retail market has given a high return on investment, but if i've understood it correctly, this is about to change.. (consumer spending growth will moderate, capital growth is slowing as yields stabilise, 13million sqm of additional space comes on stream in 2008 (mirvac quarter 1, 2008 report)).
The demand for office space remains strong as vacancy falls and rents rises, major tenants is seeking accommodation that meets modern environmental and technical requirements (mirvac).So what i was thinking is to invest in office REIT's and diversify with REIT's from sectors that correlate negatively with office reits (to mitigate the unsystematic risk).
I have not found the correlation factors or my choice of weighting yet..Soooo.. any thoughts or/and advice?? And please justify your choice of REIT-sector..
Thank you sooo much in advance.. this would help me alot!
best regards
MagnusMagnus, have you joined the API? As a student member (and GAPI/AAPI) there are quite a few reasonably good resources both in their members section and in their library.
Refer to the property clocks as to where the current thinking is with regard to the investment cycle.
Investment in retail is generally counter cyclical although it is now taking much longer to get development approvals cf: Westfield Centrepoint which has been in planning for 8-10 years, Rouse Hill which is still under construction with the first 3 stages complete etc.
Log into the websites of the REIT's, download their annual returns.
WRT the office sector – there is still a large oversupply of office space in some sectors (A-, B grade) on Sydney's north shore althoug the market is quite segmented – eg North Ryde is under full expansion mode with the introduction of heavy rail by the end of 2008.
Residential – keep looking. There are very few if any reits which will get involved in residential as a means of gaining any returns.
Industrial – quite a profitable sector considering the low rate of unemployment at the moment.
Look outside of the box into infrastructure type reits eg macquarie airports, toll roads and the like although a lot of these have been taking a hammering of late with downgraded ratings.
You will also need to consider the effects of the subprime fiasco and its effect on the ability for reits to refinance their liabilities or to raise alternative funding.
Scott No Mates wrote:Magnus, have you joined the API? As a student member (and GAPI/AAPI) there are quite a few reasonably good resources both in their members section and in their library.Refer to the property clocks as to where the current thinking is with regard to the investment cycle.
Investment in retail is generally counter cyclical although it is now taking much longer to get development approvals cf: Westfield Centrepoint which has been in planning for 8-10 years, Rouse Hill which is still under construction with the first 3 stages complete etc.
Log into the websites of the REIT's, download their annual returns.
WRT the office sector – there is still a large oversupply of office space in some sectors (A-, B grade) on Sydney's north shore althoug the market is quite segmented – eg North Ryde is under full expansion mode with the introduction of heavy rail by the end of 2008.
Residential – keep looking. There are very few if any reits which will get involved in residential as a means of gaining any returns.
Industrial – quite a profitable sector considering the low rate of unemployment at the moment.
Look outside of the box into infrastructure type reits eg macquarie airports, toll roads and the like although a lot of these have been taking a hammering of late with downgraded ratings.
You will also need to consider the effects of the subprime fiasco and its effect on the ability for reits to refinance their liabilities or to raise alternative funding.
Thanks alot!
This will defentely come in handy!Magnus, which course are you studying & at what uni?
Scott No Mates wrote:Magnus, which course are you studying & at what uni?
I'm actually studying for my masters degree in property development back in Norway, but I'm taking my 4th year all the way down here in UNSW, Sydney.
This assignment is a part of the course Property Finance.PM me if you need pointers (I'll back up my background off the forum).
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