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Representative expert survey on investment behaviour in real estate The latest study “Real Estate Investment Survey 2011”, performed by the Swiss team of Jones Lang LaSalle examines current and future allocations, trends and opinions of institutional Swiss real estate investors. The findings of the study are based on a survey conducted with insurance companies and pension funds in Switzerland during spring of 2011. Thanks to the high number of response the answers represent a total investment value of CHF 548 billion and thus a significant share of the institutional capital invested in Switzerland. The real estate assets represented in the study amount to about CHF 63 billion. The survey aimed at the investment behaviour with regard to direct real estate ownership, listed real estate investments like shares of real estate enterprises as well as indirect non-listed real estate investments such as real estate investment foundations. Furthermore, the assessment of local and foreign investment preferences was also an objective of the survey.
Local focus on direct investmentsDirect real estate investments of Swiss institutional investors still remain local investments. The focus still lies strongly on residential use: 83% of properties of pension funds and 61% of properties of insurance companies are residential real estate. The majority of insurance companies are also planning to further increase their residential exposure in the next two years. Both investor groups share the opinion on the availability of investment opportunities: Over 90% of the survey participants estimate the supply of investment opportunities in Switzerland as “scarce” or “extremely scarce”, and the prices of residential properties are mostly considered as “too expensive”. The planned allocations of the survey participants allow the conclusion that the high excess demand for residential properties in Switzerland will remain persistent in the future.
Insurance companies invest directly and in Switzerland The survey results of insurance companies show a clear refusal towards an international real estate investment. Both direct real estate assets as well as indirect real estate investments in foreign countries are the exemption and are situated – if any – only in Europe. All other global regions hardly appear on the insurers’ investment radar and are supposed to be even gradually reduced, if existent – in the next two years. This is particularly astonishing because most insurers have international subsidiaries and thus the necessary know-how would be present in order to build up an international diversified real estate portfolio. The uniform orientation of real estate investments to Switzerland may be linked to the regulations, which the insurers are subject to. Furthermore, the Swiss real estate portfolios have had above average success in international comparisons in the past few years.
Large Pension funds invest directly in Switzerland and indirectly abroadBesides the insurance companies, the large pension funds are the only investor group where the share of direct real estate of total real estate assets lies significantly over 50% at about 79%. None of the surveyed pension funds declares to own direct real estate assets in foreign countries. Nevertheless, the diversification towards foreign countries is still an option for the managers of the large pension funds. For listed real estate investments, Switzerland is not the only focus anymore. Two thirds of the interviewed pension funds declare to hold listed investment vehicles, invested in the European Union just as often as such investing in Switzerland. Approximately one quarter of all pension funds state to be invested with indirect real estate investments in North and South America and in Asia/Pacific. It can only be guessed from these answers that there is a certain “concern” about the sustainability of the Swiss real estate market.
Small and medium pension funds invest indirectly and in SwitzerlandThe trend of small and medium pension funds holding their real estate investments indirectly continued. Whereas the share of indirect investments of total real estate assets was still ca. 30% according to the last survey of 2008; the small and medium pension funds have about the same amount of direct and indirect investments in the meantime. Twenty-six per cent of the interviewed pension funds even claim to hold no direct real estate investments at all anymore. Mainly indirect non-listed real estate investments, like for example the investment foundation, are favoured by the small and medium pension funds and are supposedly increased further in the next two years according to the survey. Not only investment vehicles with properties in Switzerland are an option but also investments in the European Union, in North and South America and in Asia/Pacific. The success story of Swiss investment foundations is to be continued therefore. The pension funds managers have well realized that the increasing professionalism of these real estate investments and the relief of their own organization are beneficial. Jan P. Eckert, CEO of Jones Lang LaSalle Switzerland, also recognizes potential risks of this development: “The investment foundations need to be cautious not to become victims of their own success. In a narrow market, characterized by excess demand, the discipline of the investment foundation manager is crucial when facing potential challenges regarding investing additional money inflows.”
Insurance companies and large Pension funds – diverging StrategiesInterestingly enough the survey shows that the insurance companies and large pension funds set their investment emphasis in different manners. Whereas the insurance companies hardly have any interest in a real estate exposure abroad, the subject is clearly on the radar of the large pension funds. From an investment strategic point of view, two large groups managing retirement funds are thus differently oriented. Jan Eckert’s opinion to this is: “If the assumption is true that the insurance companies relinquish from a possible expansion of an international real estate exposure in the BVG business particularly due to pressure of regulations [note: investment regulation FINMA, Swiss Solvency Test and Solvency II], the situation would require critical discussions. It would be unpleasant if controversies in management of retirement funds arose from the impression of unequal regulations.”
Jan P. Eckert, CEO Switzerland
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