Wealthy Americans pin hopes on property market

PUBLISHED : Saturday, 08 February, 2014, 5:13am
UPDATED : Saturday, 08 February, 2014, 10:30am

US millionaires see real estate as the top alternative-asset class to own this year, according to Morgan Stanley.

About 77 per cent of investors with at least US$1 million in assets owned real estate, a survey released on Thursday by the investment bank's wealth management unit showed. Direct ownership of residential and commercial properties was the No1 alternative-investment pick, with a third of millionaires surveyed saying they planned to buy this year. Twenty-three per cent said they expected to invest in real estate investment trusts, the second-most popular choice.

Wealthy American investors are turning to a rebounding real estate market in the country as fixed-income yields remain low and equities surge. US commercial-property values rose 8 per cent in the 12 months to last month and have jumped 71 per cent since hitting their post-recession bottom in 2009, research firm Green Street Advisors said. The S&P/Case-Shiller index of home prices in 20 cities is up 24 per cent from its 2012 low.

"After a year where the S&P index rose 30 per cent, some millionaires are moving money out of traditional, long-only strategies to find outperformance and turning towards alternatives such as real estate," said Gary Kaminsky, a vice-chairman at Morgan Stanley Wealth Management. "Sophisticated, high-net-worth investors are much more concerned about losses."

Collectibles ranked as the third-most popular alternative-investment choice, with 20 per cent saying they planned to buy, followed by private equity at 19 per cent and precious metals at 16 per cent.

Wealthy investors saw stocks getting expensive and interest rates staying stable or even declining over the next few years, Kaminsky said at a conference for Tiger 21 investors in Arizona last week. That was why they were looking more closely at alternatives, he said.

Tiger 21 members, who have at least US$10 million in investable assets, increased their average allocation to real estate to 21 per cent in the fourth quarter of last year from 19 per cent in the first quarter, a separate study released by the New York-based group last month showed.

Will Ade, a Tiger 21 member, said real estate was a particularly attractive investment because stocks looked vulnerable this year. "We had a great bull run last year," the 60-year-old geologist said. "I don't know if the bull is dead, but it certainly is lame right now."