Is direct investment in international property markets justifiable?

This paper critically assesses the relative merits of indirect and direct methods of international property investment. Despite similarities in the underlying asset base, each offers different qualities in terms of information costs, diversification, management and transaction costs, liquidity, volatility and quality of performance measurement. It is argued that direct investment will only be justifiable where investors are confident that they have the ability to identify underpriced assets, can manage these assets as effectively as local companies and can handle the investment risks associated with such lumpy, illiquid assets. It is concluded that for many investment funds, indirect investment in specialist property investment companies would seem to offer a more suitable method of gaining exposure to international property markets. In general indirect markets are more transparent, information costs are lower, liquidity is higher (with consequent implications for portfolio asset allocation decisions) and performance measurement is less problematic.