US property investors are turning their backs against buying at home and are increasingly looking for higher returns overseas.
One research firm is saying that US investors are particularly interested in investing in shopping malls, offices and apartments – so much so they spent £1.7 billion on overseas real estate in the first quarter of this year.
Investments are now running at a six year high, with investors pouring money into exchange traded funds and mutual funds which pump cash in to snapping up commercial properties.
The research firm, Lipper, says the amount being spent is the largest since the first quarter in 2007 when £3.4 billion was invested.
Investing in foreign property markets is becoming increasingly attractive to investors because the sector helps diversify portfolios away from stocks and bonds and boosts income while reducing risk.
Real estate REITS
Institutional investors are leading the way, and they are increasingly interested in investment vehicles such as real estate investment trusts (REITs).
The move has been underlined with news that the FTSE NAREIT All Equity REIT Index, which measures the performance of US-based REITS, rose by nearly 20% last year
However, a similar index measuring the performances of REITS for developed countries outside the US rocketed by 38.6% in the same period.
Foreign real investments are attractive to a wide range of institutional investors. The sector attracted attention when New Jersey’s pension fund announced it was investing £322 million into a new hugely ambitious £2.6 billion property portfolio being put together by the Blackstone Group for investment in Asia.
401(k) pension plans
The pension fund’s chief investment officer Timothy Walsh said: “The big plus for us for investing is the diversification it brings to a portfolio and we believe there will be better returns going forward.”
To help meet investor and institutional demand in the US, there are now 104 real estate mutual funds investing in the global property market – that’s an increase of 50 since the end of 2007.
A growing number of 401(k) retirement plans also offer the chance to invest in global real estate, which is a 30% increase since 2007.
Now more American pension funds are planning to increase the proportion they allocate to overseas real estate in their portfolios, from 3.5% to an average of 6.2% this year.
The reasoning for US investors is the higher yields they can get from overseas real estate. A REIT which may own a building in Hong Kong might see a 6.8% annual yield, while bonds may return 2.5% at best.