EUROPE - Institutional investors should consider investing in residential property as an asset class and push for residential Real Estate Investment Trusts (REITs), according to Reita's panel of property investment experts.
Reita's quarterly property investment perspective report suggested falling residential property values and improving residential rental yields should encourage institutional investor to invest in residential property.
Over three-quarters (78%) of the 24 experts surveyed thought the development of residential REITs would enhance investment interest in residential property.
Peter Cosmetatos, operating director for Reita, said: " In recent years, the residential investment market has been dominated by individual and small-scale buy-to-let investors, many of whom may have tended to rely too much on capital appreciation. It would certainly be a good thing for the private rented sector to greater institutional involvement."
At least 67% of Reita's expert panel thought institutional investors should be "very" or "slightly" interested in residential property as an asset class.
The Property Industry Alliance (PIA) has proposed residential REITs over the last year as a way of introducing greater institutional investment in residential property.
"The PIA has been urging the government to consider changes to the UK REIT regime to facilitate the emergence of new REITs, including residential REITs in particular. While that dialogue has been overtaken by more pressing downturn-related issues in recent months, it is expected to be revived after the budget," said Cosmetatos.
Experts warned, however, that investors should exercise caution and make sure the focus on yield and management was right before investing.
"Falling capital values improve the income yield, but investors should probably be thinking of capital appreciation as a bonus and not as an essential component of the return from residential property," said Cosmetatos.
Half of Reita's panel said they did not see any deterioration in investor sentiment over the past three months, compared to just 20% for the previous quarter.
Patrick Sumner, chairman of Reita, rising property prices, argued attractive yields and full auction rooms are evidence that the property investment market is picking up.
That said, the investment experts remained pessimistic about the availability of bank funding, with 62% reporting no change in the last quarter.
"There is no bank funding available. Investors may have committed but undrawn facilities, but there are reports of banks unilaterally cancelling these. Borrowers facing refinancing need to satisfy their bankers that the interest is well-covered', said Sumner.
Reita's expert panel included representatives from the European Public Real Estate Association (EPRA), the National Association of Real Estate Investment Trusts (NAREIT) and the London Stock Exchange.
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