by Susan Edmunds
APN Property Group issued a report considering whether the Australian sector’s performance was sustainable and whether Australian real estate investment trusts were overvalued.
Over the past 12 months, the S&P/ASX300 Property Accumulation Index has delivered 30.8% total return, outperforming the broader equities market by 4.8%. The Australian sector is trading at about a 10% premium to net tangible asset value (NTA).
APN said Australian real estate investment trusts had been the beneficiaries of a search for yield. “We believe this exceptional performance will moderate over time, as was indicated by the market’s performance in May, down 3.7% over the month.”
It said the sector was still well positioned to provide long-term returns of about 9% to 11% over the next 12 months because of sustainable rental earnings. It said there was room to move even further up over NTA because of the costs associated with property purchases.
Simpson said the same questions were probably being asked of New Zealand property trusts. “They are trading at near record price-to-NTA ratios.”
But he said the yields were very attractive compared to interest rates, which would keep their prices up.
“The property market is recovering… there’s a lot of upside over the medium term.”
He said over the near term most of the return for investors would come from dividend yields rather than share price appreciation. “Our economy is tracking better than Australia’s and that has a big bearing on the real estate market.”
He said there was not a lot of new office or retail supply coming on to the market, which helped. “They’re fully priced but not overprice.”
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