The London property market continues to attract international demand. This, together with reported signs of a gentle recovery in the rest of the UK, suggests the UK property market is once again becoming an attractive alternative investment.
In fact, returns on real estate have been revealed as better than bond yields and above those in equity markets. FE Analytics listed real estate yields exceeded 11% in the 12 months up to February this year.
This presents a huge opportunity, yet it comes at a time when the real estate investment market itself is undergoing transformation. Among the main drivers are new regulations, which look set to have a significant impact on the real estate industry, particularly on the way in which business is currently carried out.
Shock of the new
The Alternative Investment Fund Manager Directive (AIFMD) is one of a series of regulations introduced by the European Commission that will cover a wide range of industry activities. Others include Solvency II, Basel III and European Market Infrastructure Regulation. Each of these has its own defining characteristics but all are designed to provide investors and other stakeholders with better shock testing, security, analysis and transparency.
Many fund managers are still making decisions based on spreadsheets that have no traceability, but most realise the time is right for this to change to provide flexibility for now and in the future.
The only way of accelerating the decision-making process is to integrate the flow of data into a centralised database system that can be easily accessed.
This will speed up the transfer of data from property managers upwards and make the decision-making process rock solid. Everyone will be able to trust the underlying data, the formulas and the models.
Up-to-date reporting based on a firm foundation of credible data will soon be a necessity, and many fund managers are already working to achieve this. As a result, an estimated 60% of real estate fund managers have already installed the infrastructure to enable them to meet the obligations.
Part of the challenge is that, historically, the industry has not had any formal reporting requirements. Under the AIFMD, more than 130 pieces of data must now be reported to regulators. This is a significant demand and many fund managers are recognising they do not yet have sufficient back-office operations.
Technology drive
At the same time, those who have installed the right systems are seeing this as an opportunity to use technology for proactive change. The restructuring of business processes and strategies, if done correctly and on time, will result in many benefits in terms of compliance and performance, greatly enhancing a fund manager’s appeal to investors.
Astute fund managers are looking beyond endless record keeping. Adopting new systems early means they will be well placed to anticipate future risks. For many companies, moving from a retrospective business model to a predictive one will be a valuable side-effect of the regulations, and one that could offer competitive advantage. This is because the regulators are not the only ones demanding more information from fund managers; investors are also seeking deeper levels of intelligence.
Consequently, the best real estate fund managers are installing rigorous procedures so they can gain investors’ trust by providing accurate forecasts and reports. With confidence returning to the real estate market, it is only natural that investors are choosing to place money with those fund managers who have risk under control.
