Real estate, stocks pitched at pension-fund managers
Published:Sunday | October 2, 2011 | 12:00 AM
The real estate market remains soft, and equities offer a mixed bag of opportunities, but last Thursday pension fund managers were told that both investment areas were poised for acquisitions.
Values on the property market continue to decline, acknowledged Karl Allison, partner at real estate company Allison, Pitter and Company.
But: "We are seeing a return of developers to the market which seems to indicate that capital return is now greater than the cost," said Allison at the joint Private Sector Organisation of Jamaica/Prime Asset Management pension seminar last Thursday in Kingston.
Financial analyst and investor John Jackson, presenting at the same forum, talked up the stock market, saying there was "no better home for funds", and was especially bullish about the junior market.
"Profits are good so far and expect to continue with the technical indicators pointing to strong upward movements," said Jackson of the broad market.
Among the stocks he likes are juniors Lasco Distributors, Lasco Manufacturers, AMG Packaging & Paper Company and Caribbean Producers; and seniors National Commercial Bank Jamaica and Barita Investments.
Real estate is among the top five investment instruments for pension funds.
Of the pension-fund market which is currently valued at approximately J$250 billion, investment in real estate is just about 5.6 per cent or J$14 billion.
diversification
Sagicor Life Jamaica, one of the bigger player in the pension-fund market has approximately 9.8 per cent of its pooled pension fund invested in mortgage and real estate investment.
Allison notes that characteristics such as incomplete information due to confidentiality of transactions, lengthy transaction times and somewhat finite supply often hamper investment in real estate.
On the upside, the segment provides a means of diversification of portfolio assets.
In the residential real estate market, Allison said the performance over the last 12 to 18 months, particularly the upper income sector has seen decline in values by at least 40 per cent and may have even climbed to as high as 75 per cent.
The upper income segment are those properties costing from J$34-J$40 million and upwards.
rental prices down
Similarly, he said, rental prices have dropped in value by about 45 per cent.
The middle-income housing sector, which Allison described as those under J$25 million, is seeing more vibrant activity, with growth improving although not in real terms.
The low-income sector, he said, continues to be in demand but not doing as well as in the last 10 years.
"The are some opportunities in the residential market, some amount of movement and potential for development and capital return," Allison told the audience of pension-fund representatives.
He said the commercial real estate market has stabilised, although rentals are still in decline in that segment.
But the stock of commercial inventory is ageing, he said, and consequently there is need for capital investment in that area, he said.
The demand for commercial space is concentrated in the 500 to 1,100 square foot range, with growth opportunities for smaller sizes as well.
"That's where the effective demand is," he said. "The economy is growing on small and medium size businesses and that's what most developers are targeting now."