A recent survey gives a perspective on real estate investments compared to the stock market. Forty-five percent of survey participants say real estate will outperform the stock market in the next three years. Only 12% think real estate will do worse, while 28% say real estate investments and the stock market will perform the same. Fifteen percent do not know.
These are among the findings of a survey about real estate investments conducted in September by Opinion Research Corporation and sponsored by Behringer Harvard Funds, a commercial real estate investment company. Survey respondents were investors who had made at least one stock, bond or mutual fund purchase or sale outside of a retirement plan during the past two years. Approximately 400 investors were queried. The margin of error is +/- 5 percent at the 95% confidence level.
The survey also found that women were more optimistic than men about real estate: 51% of women said real estate would outperform the market in 3 years compared to 40% of men. Conversely, only 7% of women said real estate would do worse, compared to 15% of men.
Age makes a difference too. Younger groups were more optimistic than ages 55 and older. Only a little more than one-third of the older respondents said real estate would do better, compared to about half of the younger groups.
'These findings help explain the explosive growth in real estate investments over the past two years,' noted Robert M. Behringer, president and CEO of Behringer Harvard Funds and a 25-year veteran of commercial real estate investing. 'Once investors recognize the value of diversifying a portfolio with real estate, their next step should be to evaluate the differences among the types of investments available and the expertise of the professionals managing them.'
Appreciation goes a long way
Survey respondents were asked to rank the importance of four real estate investment objectives. Capital appreciation potential was the clear winner, with 40% of respondents calling it the most important objective. Portfolio diversification came in second, with 31% ranking it most important. Bringing up the rear was capital preservation (15%) and current income (11%).
'If capital appreciation is an investorÂ's top objective, he or she should be sure to understand the real estate investmentÂ's plan for achieving that goal,' said Mr. Behringer. He noted that real estate investment trusts (REITs) are required to distribute 90% of their income, which is predominantly rental income, and for the past year REIT income distribution has averaged 7%. 'ItÂ's ironic,' he observed, 'that current income ranked last in appeal during a time when interest rates are at almost historic lows for fixed income securities like Treasuries.'
Shy to buy?
Despite their bias towards real estate performance compared to the stock market, less than one-third of the respondents expressed moderate to strong interest in investing in real estate now. However, attitudes changed by age group. Respondents aged 35 to 44 were most interested in making real estate investments, with 40% of them indicating a moderate to strong interest. Least interested were investors aged 55 to 64 and 65 and older, where only 18% and 16%, respectively, expressed moderate or better interest.
'Older investors may view real estate as a very long-term investment and thus shy away from it,' said Mr. Behringer. He noted, however, that many real estate investments have shorter-term investment horizons, and many REITs and real estate limited partnerships offer steady current income.
Among survey participants who were interested in real estate investments, 17% would consider putting one-quarter of their portfolio in real estate and another 17% would consider putting half into real estate.
Real estate not top priority with financial advisors
Three quarters of survey participants use either a broker or financial planner for some or all of their investment advice. However, less than one-quarter (21%) of these investors say their advisor ever suggested a real