AMP Capital has released a new white paper by its co-head of global listed real estate James Maydew, which shows that while its liquidity means listed property behaved like equities over the short term,  the correlation in returns between listed and direct property increased over time.

“Historically returns for investing in listed property have been significantly greater than direct investment over time and the risk are similar. If [investors] like real estate, they should look at listed property,” Maydew said.

“For investors who want to maximise risk-adjusted returns, an asset allocation between both listed and direct should be utilised at different points in the cycle.  Listed property can also be a useful proxy for direct investors who want to get set in property but who are struggling to deploy their capital given global competition for quality assets.”

He said some investors struggled to comprehend that the underlying economics of the investments were the same - but listed property was more liquid and did not have the same management concerns as direct investment.

Maydew said listed property looked appealing at present, compared to most other asset classes.

“Relative to bonds it looks like a good investment because bonds are horrendously overpriced. Relative to direct real estate, I feel that’s overpriced too.”

Forecasting was easier on listed property than on equities, he said, because the future income was more of a safe bet.

Many investors favour direct property for the ability to use leverage to boost returns.

But Maydew said people needed to remember that leverage would only work for the, in a market where prices were increasing.

“It’s a wonderful tool when things are going in your favour but when they are not it’s the worst thing you can have exposure to.”

He said now could be a good time in the cycle for investors to start deleveraging their portfolios.