REAL ESTATE – VBL, a €12bn pension fund insuring four million German public sector employees, is planning an initial investment in Asia’s property market by the end of 2006.
"We currently have 5% of our assets allocated to Europe’s commercial property market – primarily via funds. We will, however, begin investing in Asian funds this year," said Markus Selinger, director of VBL’s real estate investments.
Selinger said VBL’s interest in Asia was both due to "higher expected returns and the fact that barely correlated to Europe’s". He provided no further detail on the plans.
VBL’s interest in Asia comes amid comments by property experts that the region should outperform both the US and Europe in the near future. These experts point out that there are now clear signs that the bull run in the US housing market is over.
For Europe, Dirk Söhnholz, managing director at German investment consultant FERI, cites the danger posed by interest rates. "The possibility that both short and long-term rates will continue to rise in 2007 are a threat to Europe’s real estate market. There is a 50-50 chance that the rates could harm growth."
All told, VBL has 9% of assets allocated to real estate, with the other 4% divided between residential property and retirement homes in Germany. Last Thursday the VBL held a public ceremony marking the acquisition of 65 new flats in Karlsruhe, where it is based.
"We feel that residential property in Germany is a sustainable investment for us. Even in the future, investments in German residential property should bring an appropriate return given moderate risk," Selinger told IPE.
Although there are signs of a recovery, the past weakness of the German commercial market prompted several pension funds to sell direct holdings in the sector and instead invest in international funds.
One of the more prominent among the funds is the BVV, a €17.7 scheme for Germany’s financial services industry. The BVV has cut direct holdings in German commercial property to 1.1% of assets.
At the same time, the BVV has said that it would expand its investments in international property funds to 5-8% of assets compared with 3.3% now.
-Jan F Wagner