Investors turn cautious on real estate as prices rise

August 15, 2005
Investors turn cautious on real estate as prices rise

A smaller proportion of financial institutions are investing in real estate securitization products in fiscal 2005 due to rising property prices and lower returns, according to a survey by the Association for Real Estate Securitization.

The poll was conducted in May and collected responses from 107 life insurance companies, casualty insurers, trust and regional banks, as well as other financial institutions and company pension funds. The number of respondents who said they invest in real estate investment trusts, including funds of funds, fell 10 percentage points from last year to 78%. Some 38% of investors said they invest in privately held investment funds, a 7-percentage-point drop. With the high influx of investments from foreign funds and other investors, commercial and other buildings in urban areas continue to sell at high prices. "If prices keep rising, it will start looking more like a bubble," said a top manager at a major real estate firm.

Amid such warnings, the market price of listed real estate investment funds plunged last month. The QREIT index released by Quick Corp. closed on Aug. 9 at 189.53, sharply lower than the high for the year of 200.92.

On the other hand, corporate pension funds are boosting their investments in real estate products as they seek to diversify risks. Some 16% of them said they invest in real estate investments, while 22% replied that they invest in privately offered funds, both increases from last year.

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