Why Real Estate?

Over the past five years, real estate has delivered very strong absolute and relative performance, at far lower volatility than equities. Global direct real estate has averaged 12% annual returns and real estate securities a staggering 26%, far stronger than the broader equity market.

This robust return on real estate investments has been the result of low global interest rates and an improvement in market fundamentals. Strong real estate returns have led to a dramatic upsurge in capital flows to the sector, which in turn have supported further increases in real estate value and return.

On the direct side (private investment), volume has increased threefold since 2001. Global real estate transactions amounted to about $600 billion in 2006, up 20% on the previous year. In total, the global real estate market has an estimated value of $8 trillion, about 15% of the global equity and 25% of the global bond markets.

Investment in real estate equity tends to takes two forms: private and public (also referred to as real estate securities). Within the former, investments are made in real, tangible assets that enjoy a steady cash flow from rental income. In most cases, investors access direct real estate through pooled investment vehicles.

Public equity strategies involve investing in property company shares, including REITs. Real estate securities can provide exposure to good property expertise and a diversified set of properties, with considerably more liquidity and divisibility than the direct route.

Private and public equity real estate offer favourable risk-return characteristics and low correlation with traditional assets. Beyond the low correlations with other asset classes, real estate also provides significant diversification benefits across regions. Real estate remains a local business, with different planning regimes and market practices leading to variations in underlying real estate markets.

Real estate returns have a few main drivers: population, economic and employment growth, benchmark interest rates and the 'real estate cycle'. Economic expansion generally, and job growth particularly, are key drivers of real estate demand and rental growth. The risk free interest rate affects the market real estate yield, also known as a capitalization rate. Changes in the capitalisation, or cap, rate drive real estate appreciation.

Finally, the real estate cycle refers to the seesaw relationship between supply and demand. Several years of good demand and rent growth tend to lead to new construction or more recent trends have seen vast levels of investment and new construction into new and emerging markets. Stately Investments offer an ongoing commitment to proactively identify these markets ahead of competitors and provide our investors the opportunity to invest into emerging markets at an early stage and benefit from the consequent capital appreciation.

At Stately Investments we offer the opportunity to invest into tailored portfolios either directly on a private basis or indirectly through a variety of public equity strategies.