Investors spooked by 'overvalued' properties

Investors spooked by 'overvalued' properties

A PERCEIVED inflation of Singapore property prices is deterring high-net worth investors here, according to findings from a survey commissioned by Legg Mason Global Asset Management (LMGAM) on Friday.

The survey, which polled some 5,370 affluent investors in 19 countries between last December and January this year, found that 78 per cent of core investors - defined as those aged between 40 and 75 - agreed that local property prices are "overvalued".

Some 89 per cent of millennials - defined as those aged between 18 and 39 - echoed similar sentiments. As a result, the proportion of investors viewing real estate as one of their top three investment opportunities has slid to 29 per cent, down from 41 per cent in 2015 and 49 per cent in 2014, LMGAM said.

The Baltimore-based investment firm added that as property expectations fall, investors here are likely to be more focused on international investments. Some two-thirds of core investors and slightly over half of millennials view international stocks as "offering some of the best investment opportunities in the next 12 months", with the US seen as as the top country for investment opportunities this year.

"In spite of the uncertainty of a post zero-rate world, investors in Singapore and other parts of the world still view the US as providing the best opportunities, particularly in equity investing," said Ajay Dayal, investment director at LMGAM.

"There are several factors for this, including the continued improvement of the US domestic economy and historical performance of the asset class according to returns during past rate-hike cycles."

As global uncertainty weighed on Singapore investors, conservatism has become the underlying theme of their investment philosophies, even as 75 per cent of core and 83 per cent of millennial investors expressed confidence in the economic future of Singapore.

More than three-quarters of core (77 per cent) and millennial (78 per cent) investors agreed that they are more risk-averse compared to a year ago, LMGAM said, adding that Singaporean investors seek low rates of return on their portfolios (7.1 and 8 per cent for core and millennial investors) as compared to the global average (9.9 and 10.2 per cent).

Among peers in the region, core investors have the highest percentage (29.7 per cent) of their investments allocated to cash. Similarly, millennials allocate 28.2 per cent of their investments to cash, the highest allocation of a single asset.

Warning that Singapore investors are unlikely to align their expectations for income and portfolio returns while holding large cash allocations, Lennie Lim, regional head of LMGAM in Asia, said: "Investors need to move away from holding large cash positions into a set of investment solutions, involving better management of risk and diversification strategies that will afford them equity growth with lower volatility in order to meet their investment goals and income needs."

This article was first published on April 18, 2016.
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