Buy UK, Asia real estate as inflation hedge

HONG KONG: Investors should buy real-estate assets and funds that invest in property in the UK and Asia because a potential rebound in prices and economic growth will counter inflation risks, Aberdeen Asset Management Plc said.

While UK properties offer “attractive” yield, real estate in Asia is supported by the strength of the region’s economic growth, Michael Turner, head of global strategy and asset allocation at Aberdeen, said in an interview in Hong Kong on March 16. He recommended buying into real-estate investment trusts and funds that hold property, without giving specific names.

“People should allocate more money than they do now in real estate as a hedge against inflation,” Turner said. “Real estate, whether or not there’s inflation as a result of macro policy, is attractive in its own way.”

China, India and Australia have tightened monetary policy to curb inflation as the global economy recovers from the worst recession since World War II. Interest rates in advanced economies can remain accommodative for an “extended period”, while policy in “a number of emerging economies” may have to be tightened “relatively soon” because of signs of accelerating inflation or credit booms, the International Monetary Fund said in a Jan 19 staff note.

Minutes from the Australian central bank’s March meeting, released on March 16 in Sydney, said policy makers raised borrowing costs this month for the fourth time in five meetings because the risk of faster economic growth stoking inflation outweighed the potential for renewed financial-market turmoil.

In the US, where the housing market is still flat, the US Federal Reserve on March 16 repeated its pledge to keep its main interest rate near zero for an “extended period”.

It is a different story in Asia and Britain. UK house prices rose in February at the fastest pace in more than seven years, research group Acadametrics Ltd said on March 12. Nine of 10 Britons say buying a home is a “sensible investment” even after the nation’s worst housing slump in three decades, a survey by YouGov Plc published on March 2 showed.

In Asia, property prices have risen as economic growth in the region outpaces the rest of the world. Hong Kong’s home prices surged almost 30% last year, Centaline Property Agency Ltd said this month. Australian home prices jumped 13.6% in 2009.

The World Bank forecast in January that the global economy will expand 2.7% this year. China’s economy, the world’s third biggest, will top last year’s 8.7% growth rate in 2010, the nation’s central bank estimated this month. Singapore’s gross domestic product is forecast by the government to grow between 3% and 5% this year.

Aberdeen Asset was buying more UK offices and warehouses, and most of the £50 million (RM271.32 million) Aberdeen raised through stock sales would be invested in UK properties, Turner said on Nov 2. He declined on March 16 to say how much Aberdeen has increased its investment in property.

Inflation expectations are rising in China, making it more difficult for Premier Wen Jiabao to meet his 3% full-year target for price increases and adding to the case for an interest-rate increase.

The number of Chinese households expecting prices to gain in the next three months increased in a quarterly survey conducted in February, the central bank said on its website on March 16, citing seasonally adjusted data. It didn’t give numbers.

The People’s Bank of China will raise interest rates this month or next after the government reported higher-than-expected consumer-price gains in February, according to 11 of 15 economists surveyed by Bloomberg News last week. – Bloomberg LP