INVESTING
The coronavirus and the property market
Most asset classes have experienced COVID-19 disruption. Grant Atchison looks at how the domestic property sector has fared during these trying times.
GRANT ATCHISON is managing director of Freehold Investment Management.
While the primary impacts of coronavirus are currently being felt by individuals and communities around the world, the duration and severity of its effect still remain largely unknown. Here’s what we have seen to date. A first order impact relates to our health and the ability to continue with our daily lives. Then, the secondary impact – the global reaction to coronavirus, which is a combination of a flight to safety in the investment markets and a restriction on global trade, both within and between countries. This restriction has had an impact on the movement of goods, currency, people and ultimately gross domestic product (GDP).
Listed versus unlisted property securities – different impacts Depending on the duration of COVID-19, the experience of investors in listed and unlisted
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property securities may be quite different. Listed property securities, or Australian real estate investment trusts (AREIT), are exchange traded and valued second to second by the market. This results in an immediate valuation adjustment for any news or investor sentiment. We have seen the impact of this over the past few weeks, with high levels of daily and intra-day volatility. On the other hand, unlisted property securities are unit priced periodically, monthly, quarterly or annually, on an appraised valuation basis. The trustees of unlisted property securities have a set valuation policy that determines when each asset in the portfolio is valued. Often 25 per cent of the security is valued each quarter, resulting in 100 per cent being valued over the full year. This generally prevents an over or underreaction from any individual news event and delivers a less volatile experience for investors.
