Investors shun property funds over fears that prices have peaked

Property funds globally suffered their worst year of fundraising since 2013 as investors shunned real estate over fears that the market is at risk of overheating. They piled into private equity and debt instead.

Closed-ended property funds, where investors lock up money for a defined time, raised $109bn in 2017, the lowest figure in four years and down 13.5 per cent on 2016, said Preqin, the data provider.

By contrast, private equity and private debt fundraising reached an all-time high, at $453bn and $107bn, as investors sought other sources of yield in the low-interest rate environment.

Oliver Senchal, head of real estate products at Preqin, said fundraising in real estate had not enjoyed the “surge of activity” seen in other sectors.

“Whereas private equity and private debt funds both marked record years in 2017, the real-estate asset class has seen activity retreat,” he said.

He pointed out that this may reflect a sentiment that the market was at risk of over-heating.

Irfan Younus, head of research in Europe for Savills Investment Management, said the figures suggested investors thought property values were peaking.

He said closed-ended property funds were likely to focus on buying cheap assets. “You buy tired assets and fix them, then sell them,” said Mr Younus, adding: “At the moment …some markets are past their peak pricing-wise.”

Property had one bright spot: real estate debt funds had a good year, attracting $28bn. “Investors are interested in the income coupon, but are less interested in the capital growth,” said Mr Younus.

Mr Senchal added that there seemed to be a rebalancing of activity between strategies.