Following an annual review of global equity markets, S&P Dow Jones Indices and MSCI Inc. have announced they will effectively graduate real estate from the financials sector, adding it as its own standalone index.
Sheila Botting, national real estate leader at Deloitte, says: “Any work from any of the markets to shed a light on that asset class is very valuable, and then investors can gain confidence … so it’s a real value-add for that market.”
While the change will have a larger impact on commercial real estate, residential investors should still take note. Botting adds: “Where residential would fit would be multi-residential, like apartment building assets.
“Real estate is an asset class that is highly desirable because, from an investment perspective, you can always rent out apartments or lease out your commercial assets, because there has been a restriction on supply, especially in the major markets.”
Remy Briand, managing director and global head of equity research at MSCI, says that feedback from the review confirmed that real estate is now viewed as a distinct asset class.
“Investors told us that there are significant differences between public real estate and financial companies, and therefore real estate deserves a dedicated [Global Industry Classification Standard] sector.”
The annual review aims to ensure that the GICS structure appropriately represents the global equity markets, enabling asset owners, asset managers and investment research specialists to make consistent global comparisons by industry.
The change will be implemented after market close on August 31 2016.
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Real estate will finally get a starring role on the U.S. stock market, which experts say will lead to a confidence boost for investors.