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Forgive and forget

A decade and a half or so in this business and I have only just discovered I am a financial acronym. Last night, for reasons best left unexplored, I typed “Marr” into Wikipedia and, well, did you know it stands for “minimal acceptable rate of return”?

As I say, I did not, although it seems oddly appropriate for the slower months of my alleged career as a freelance hack. More worryingly, to judge from the hollowness of her laugh when I told her, the mother of my children felt it had some personal resonance for her too.

Anyway, he says, warming up for the inevitable tenuous link, I have recently had cause to write about property investment and found myself wondering why, despite the not so shabby rates of return projected by the experts – around 7 per cent a year over the next five years is Aviva’s call for the UK market – invest-ors view it as a minimally acceptable asset class.

Sure, it rather blotted its copy book over the credit crisis but it was hardly alone in that. Investors appear to have found it in their hearts to forgive another sinner, equities, a whole lot more quickly. Nor have the investment qualities of property been fundam-entally altered by the crisis, with every property manager I spoke to ready recite the litany of benefits at the drop of a hat.

In case it has been a while, these include transparency, the hybrid potential for generating both income and capital, its attributes as a portfolio diversifier and tool for managing volatility and creating better risk-adjusted returns and even its very tangibility.

“Where you have come through the cycle we have, where even traditional asset classes have been brought into question, real estate is still bricks and mortar and land,” says Rory Morrison, a senior director of the European fund management team at Invesco Real Estate. “That tangibility provides some comfort, especially when so many investments, such as Madoff, have since been seen to be worth nothing.”

But I wonder if this is also part of property’s current problem. Does property’s tangibility and people’s familiarity with it lead to it being a more emotive investment? Do investors feel more let down by property’s performance over the credit crunch than by that of other asset classes and is this why they find it harder to forgive? Or is this why I should leave behavioural finance to the experts?

For those just about ready to forgive and forget, my research threw up some interesting discoveries on risk, both with regard to our old friend the Chinese property bubble and also a property sub-sector of which I was not really aware.

“It will be interesting to see what investors’ risk appetite is like this year,” Phil Clark, head of property at Aegon Asset Management, told me on the first point. “If you want to take a higher-risk approach, the emerging markets can offer that but then you have to accept the associated volatility. In China, the authorities are very attuned to the markets and risks and are trying to dampen down the property sector – not just through interest rate rises but also property taxes.

“Where there is risk in Chinese property is investing in newer developments, where there is a lot of speculation and it is difficult to assess demand. But if you invest wisely and use good property expertise to determine where tenant demand does exist, you can still invest well. With China, just as with everywhere else, property is all about location.”

Back in the UK, the hunt for another “Marr”, a “more acceptable rate of return” has led investors to consider so-called alternative avenues, such as nursing homes, student accommodation and hotels, although property managers baulk at the suggestion this necessarily involves taking on more risk.

“You can often find alternatives are mispriced and that is why people go into them,” says Justin O’Connor, CEO of Cordea Savills. “It is more about really understanding the income stream that is derived from this kind of property and the accompanying risks, rather than just looking for higher returns.” Investment centring on being better informed rather than taking higher risks? It’ll never catch on.

Julian Marr is editorial director of and


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