Globalisation has had a significant and increasing influence on the world of investment, particularly over the last 20 years. While these developments have mainly been confined to equity and bond markets, investors are now increasingly looking at the potential benefits of investing in non-domestic real estate markets.

Property has been rediscovered by investors globally in recent times, showing its worth as a diversifying asset class. It offers a 'safe haven' from turbulence in other markets while retaining the capacity to provide solid income and the scope to capture the benefits of economic growth.

Until recently, real estate investment has tended to be more domestically oriented than either equities or bonds. This is perhaps not surprising in an asset class which is complex and so greatly influenced by localised economic processes.

However, change is afoot. In recent years there has been enormous effort expended by a range of investors and advisers in building worldwide infrastructures to help investors invest with confidence in new and distant property markets. Burgeoning international data and research services have further assisted, allowing investors to take rational decisions about local conditions.

The Benefits

The benefits of non-domestic property investment are substantial. Current analysis shows that international property markets are generally less well correlated with each other than regional markets within national boundaries, suggesting that international real estate investment facilitates increased diversification in property and multi-asset investment portfolios.

The data also demonstrates that different markets around the world can offer superior returns at different times, increasing the scope for tactical asset allocation for property investors.

However, international property should not be thought of as a single category of asset; it forms a spectrum of different asset-types. Lease structures and taxation regimes, which in large part determine the nature of the cash flows from investments, vary around the world.

Property in markets with short leases is more 'equity-like' while a few markets with long leases and infrequent rent reviews are more 'bond-like'. Some national property markets are highly professionalised and transparent. In others, the infrastructure to support the property market is still evolving.

Add this diversity to the natural range of risk and return opportunities that exist in any local property market, and international property clearly offers a universe of opportunity to match the fullest range of risk appetites.

Going Global

It seems clear that there are now significant opportunities on offer to investors considering investing in non-domestic property markets. However, 'going global' is not something to be undertaken lightly. Investors need to have expert insight on local market conditions and the best professional support.

By associating with an organisation like PRUPIM, which uses disciplined analytical processes and has all the necessary legal and tax management infrastructure in place, the benefits can be expertly captured, and unnecessary risks managed away.

"Property has been rediscovered by investors globally, showing its worth as
a diversifying asset class"