A new report published by trading platform Cofunds shows that net inflows into the Investment Management Association's (IMA) Property sector reached £77m, knocking the Mixed Investment 20-60% Shares sector off the top spot after 15 months.
According to the IMA, net inflows into property investments have increased by more than 400% in the past year, indicating the UK economy is steadily improving.
Head of commercial at Cofunds, Graham Venn said: "Fund Groups are broadly in agreement on the reasoning behind the recent surge in popularity experienced by the property sector, especially in the 'bricks and mortar' funds."
"Equally they have a bullish view for the future of property funds with all reference indicators being healthy growth in the commercial and rental sectors, especially in the London and surrounding areas."
'Bricks and Mortar' Most Popular Diversification Investment
Cofunds are a leading investment platform for advisers and financial institutions with assets under administration in excess of £65.6bn. The report, published on 23rd June provides a clear indication of investor confidence levels over a broad range of asset classes. While popularity for London prime markets is increasing, transaction volumes in the Eurozone have also increased significantly in the past year.
Darius McDermott, Managing Director of Chelsea Financial Services commented: "Diversification is a key reason for the recent investor interest in Property funds. There's no surprise property has seen a surge in demand offering potential high income compared to yields on most other asset classes."
Real estate has long been heralded as an essential diversification tool for portfolio investors due to consistent demand dynamic of the market. Real estate is also a low correlation sector which means that it doesn't necessarily move in response to or alongside prices in other asset classes.
Spreading Risk amongst Asset Classes
Investment diversification helps to reduce risk by spreading it across investment vehicles that have little or no correlation to each other. It makes sense that if investment is in just one sector, such as equities, any falls in value affect an entire portfolio whereas through diversification, one asset class may be on the up to counterbalance those assets experiencing falls.
As the Eurozone rebounds from the longest recession since its inception, property investment is looking increasingly attractive across Europe. Countries amongst the hardest hit by the financial crisis, including Spain and the Netherlands are now highly optimistic about their property markets, with renewed confidence attracting international investors and boosting transaction volumes.
International property investors are becoming more aware of developments in the sector including the ongoing loss of traditional brokers' market share to online listing services, the evolution of home offices and the impact of e-commerce on commercial property. Dissemination of information relating to property investment opportunities available throughout the Eurozone and beyond from internet sources has served to attract investors to more niche markets within the real estate sector.
Eurozone Property Market Rebounding
Eurozone efforts to restructure the region's banks and to prop up weaker economies are likely to have a significant effect on European property markets. These efforts will encourage investors to rely more on alternative debt sources to finance real estate transactions, increasing the supply of assets through the disposal of non-performing loans and the maturity of mortgage-linked securities.
Hartmut Fründ, managing partner of Transaction Real Estate, Germany said: "The European real estate market shows strong signs of recovery as the Eurozone rebounds from the recession. With banks under continuing pressure to restructure, investors will continue to look for alternative debt sources to finance their transactions. Meanwhile, the maturation of mortgage-backed securities and the disposal of sub- or non-performing loans will help to fuel a healthy supply of real estate assets".
It would appear that the Eurozone debt crisis is no longer regarded as the main driver for real estate investment as investors' risk appetite for real estate is increasing. In general, investors see a mixed outlook for prices in prime locations. Price levels in the hardest-hit Eurozone economies are expected to bounce back significantly in 2014.
- Monday 30 June 2014