Should we hunt for that elusive alpha in the Philippine property investment market?January 22, 2015 / By
The term ‘alpha’ in investment often refers to the measure of excess return earned by the fund and is arguably a reflection of the underlying fund manager’s investment skill. When applied to property investment, the hunt for the elusive alpha actually boils down to the efficient allocation of portfolio investments among outperforming sub-sectors or geographies.
Often, however, the search for the alpha becomes more complicated, as there are other property related factors, such as property management, marketing strategy and best-in-class property valuation, which also affect the return on the physical asset. To outperform the market, the fund manager needs to have a good forecasting capability backed with high quality market research and professional valuation advice. Further, the fund manager should have access to good quality property and asset management to enhance and drive the marketing strategy and ensure a steady, protected stream of income for the portfolio.
Market outperformance is also normally achieved through diversification of investment across geography and property sub-sectors. Such is the appropriate strategy for highly diversified markets such as the Philippines, to ensure efficient allocation and maximisation of investment return for any given level of risk. The recent growth in the offshoring and outsourcing industry, remittances from overseas Filipinos and increasing tourism potential have supported the demand for retail, residential and commercial assets, which supported the creation of a highly diversified portfolio consisting of investment quality mixed-use property developments, including master planned communities, across the Philippines.
While there are risks and challenges in the market, there are a number of opportunities that are likely to encourage the growth of property portfolio investments in the Philippines. For one, the long-range forecast of economic growth and development will provide the necessary backdrop for further inclusive growth of the property market. Further, relaxing the rule on foreign ownership and participation in the property market, as well as revising the tax scheme and public flotation ceiling in the REIT regulations, will allow more investments to flow. This will promote more sophisticated assets and more transparent market practices, which will generate more meaningful alpha for highly discerning investors.