Real estate (RE) is an obvious target for investors searching for yield and is therefore outperforming other asset classes. The latest monetary developments have made ING IM decide to reduce our overweight position in global RE. Regionally, they increased our position in the Eurozone and cut our overweight in the UK.
The asset manager remain positive for RE, as fundamentals in developed markets are improving and the search for yield is expected to stay with us for a while. This is especially the case in the Eurozone, thanks to persistently easy ECB policy.
Regional performances in real estate year-to-date
Real estate outperforms other asset classes
Being an obvious target for investors searching for yield, real estate (RE) equities have outperformed other asset classes and sectors this year. Besides capturing an attractive dividend yield, real estate investors have also some optionality on a broadening economic recovery.
Rate hike speculation could throw a spanner in the works
However, the ride might become a bit more bumpy as speculation about when and which central bank will tighten monetary policy first may impact bond yields. The sharp rise in 10-year bond yields in May and June 2013 - particularly in the US and the UK - which was triggered by Ben Bernanke’s “taper talk” is still fresh in investors’ minds. The rise in yields caused a sharp correction in real estate equities.
Bank of England likely to be the first mover
The UK central bank is expected to be the first mover. This was confirmed by Bank of England (BoE) Governor Carney on June 12, when he stated that the first BoE rate hike “could happen sooner than markets expect”. This went not unnoticed by the UK real estate market which corrected immediately (see graph). This might be a prelude of things to come when monetary policy is being tightened. On top of that, the BoE last Thursday announced some (modest) measures to try prevent a booming (London and South East England in particular) housing market threatening financial stability in the future.
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