26. März 2013     Print Print 

Italian property fund index records a total return of -5.8%

The IPD Italy Biannual Property Fund Index, released last week, recorded a total return of -5.8% in the 12 months to December 2012. The second half of 2012 delivered a lower return of -3.7% compared with a milder -2.2% in the 6 months to June 2012. The performance represents the second consecutive below-zero result and the lowest total return in the index series.

In comparison with other asset classes, Italian real estate closed-ended funds underperformed all investment alternatives in both halves of the year to December 2012. Equities recorded 13.3% and 11.7% (MSCI Italy) respectively; whilst real estate equities delivered 29.0% and 27.7% (Data Stream Italy Real Estate), and bonds were at 13.0% and 24.8% (JP Morgan GB Italy).

Luigi Pischedda, Country Manager Italy, IPD, said, “Italian real estate funds have indeed suffered the effect of a prolonged economic crisis. However, when put into perspective and blended in the mix of the broader marketplace with its investment options, property funds unveil some strength and the pressure of the economic crisis eases off when we look at a longer-term horizon.

“The 5-year annualised performance of the Index was -0.8%pa, which compares with -11.4% for equities and -20.4% for real estate equities. Only bonds recorded a positive performance over the same period of 6.2%, although arguably the markets have priced in a higher risk than the long-term average would suggest for this asset class.”

The year-end result was driven by a -4.6% NAV growth (-7.4%pa), which has been steadily declining for the past 5 years; while the dividend distribution component of +0.9% (1.7%pa) has failed to keep the overall returns in positive territory. This has been the case for the past 2 years.

Pischedda added, „The Index recorded a distribution yield of 1.9%, which compares with a ratio of 2.8% in 2011 and 4.4% in 2010. This is a sign of the prolonged crisis taking its toll on end investors through poorer cash flows. As a growing number of funds approach the end of their lifecycle, more cash is needed to accelerate the de-gearing track, which is proving harder to find in a buyer's market phase for commercial property“.