GLOBAL – Direct property investment and fund returns have picked up in the second quarter, even though fund performance globally has slowed on aggregate over the past three years, according to the second-quarter 2013 results of IPD's Quarterly Property Fund Index.
Fund returns for Q2 were positive at 2.6%, with a 2.5% return for direct investment in property – the spread is accounted for by the effects of leverage.
For the year ending June 2013, funds were showing an 8.2% net return.
Global averages were boosted by an 11% return in North America, which moderated Europe's slower performance, where returns were only 2.5%.
Asia retuned 7.9% for the 12-month period.
Only in the US did fund returns prove to be higher than those for the underlying properties.
There, leverage, especially with the low cost of debt, boosted fund performance.
While income remained relatively stable on a global average basis, there were regional and sector differences.
North America is seeing moderation in returns as markets stabilise; Continental Europe is still seeing negative to flat appreciation, but good income growth; and in the UK, appreciation moved to positive this quarter for the first time.
Returns were also fairly equivalent across property types.
This is different from what was seen over one year, three years or even five years, when residential was outperforming other sectors.
For Q2 2013, industrial performed marginally better than other sectors for the first time.
IPD analysed the relationship between outperformance and the use of leverage, using data from the last five years.
While North American funds underperformed over five years as a result of high leverage, over the last 12 months, high leverage ratios combined with the low cost of debt, and strong returns benefited funds.
In the UK, on the other hand, low leverage benefited funds over the five-year term, but low relative performance combined with low leverage over the past year led to underperformance.
