UK institutions frozen out of buoyant property market

The prolonged stock market collapse has not driven UK institutions to increase their property allocations as many had expected, according to the latest figures from the Office for National Statistics.

Domestic institutional investors were net sellers of property to the tune of £625 million ($1 billion) during the first half of 2002, and they sold more property than they have bought in three of the last four quarters. Insurance companies and pension funds were net disinvestors in property by £517 million ($810 million) in the second quarter of 2002, the highest level of net disinvestments since quarterly records began in 1983.

Greg Nicholson, Head of Investment at CB Hillier Parker, said: “Institutional investment in property remains surprisingly weak.” He said that demand from private and overseas investors, which see property as a safe haven for investment capital, was still driving down property yields. “The security of income offered by property is highly attractive in this uncertain and low growth environment,” he said. “As a result of falling yields property is set to out-perform both gilts and equities for the third consecutive year in 2002.”

Nicholson said that institutional investors were often outbid by private investors making use of relatively cheap finance to bid aggressively for property, which meant that many had found it difficult to place funds allocated to the property sector into the market.


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