Residential Property To Provide New Investor Opportunity

Research shows residential property is finding its way into more funds and has enjoyed extensive capital appreciation  

Editor, Europe
Reviewed by: Rachael Revesz
Edited by: Rachael Revesz

Residential property has enjoyed extensive capital appreciation and is finding its way into more retail property funds, according to new research, at the same time as residential property increasing in correlation with commercial property.

Boston-based Cerulli Associates found in its latest European monthly trends report that residential property will become a bigger part of the property investment landscape, and that Germany is Europe’s biggest property funds market.

Although London's residential property prices have doubled in the last 10 years, a much bigger jump than elsewhere in Europe, easing regulations regarding converting commercial buildings into residential property in the face of a chronic shortage of housing have helped fuel increasing correlations between the two sectors.

The latest Investment Property Databank Pan-Europe Property Funds Index is up 17.4 percent for the year, Cerulli said.

"Capital values will eventually stop rising. But the outlook for rents is more robust, and income will account for more of the average property's funds returns, even if yields, at 2 percent in some cases, don't look attractive right now," said Barbara Wall, Europe research director at Cerulli.

In the world of exchange traded funds invested in property, most investments are in commercial buildings and only a very small percentage focus on residential rents, but have done well in 2015 nonetheless as the economy continues to recover.

The iShares UK Property UCITS ETF (IUKP) is up over 12 percent over the last year, while the iShares European Property Yield UCITS ETF (IPRP) is up over 7 percent in that time. They yield 1.7 percent and 2.5 percent respectively. Even more impressive is performance of the db X-trackers FTSE Developed Europe ex-UK Property UCITS ETF (XREA) which returned 22.1 percent over 12 months.

Rachael Revesz joined in August 2013 as staff writer. Previously an investment reporter at Citywire, she has a background in writing content for retail financial advisors and has covered a wide range of subjects in finance. Revesz studied journalism at PMA Media, which has since merged with the Press Association. She also holds a B.A. in modern languages from Durham University, as well as CF1 and CF2 financial planning certificates from the CII.