WHY FOREIGN INVESTMENT IN AUSTRALIA IS GROWING RAPIDLY

Key Themes:

  • Stable political landscape
  • Strong economy
  • Robust real estate investment metrics – low vacancy, increasing rents, increasing values
  • Lower funding costs are underpinning property yields and increasing cash on cash returns

Foreign property investment into Australia declined in 2018 (especially residential property), resulting from Government policies aiming to slow foreign investment However 2019 has been a different story. In times of international uncertainty alongside the continued eagerness of Chinese nationals to invest abroad, we observe renewed interest from offshore investors into the Australian commercial property market.

Australia is presenting itself as a highly attractive investment destination for foreign capital due to the following factors; Melbourne and Sydney have office vacancy rates at all-time lows (below 4%), strong forecast rental growth due to a lack of supply and increased space demand from tenants. Furthermore, the cost of debt has fallen to well below 3%, coupled with the low Australian dollar and stable political and economic climate of Australia solidifies Australia’s appeal. Yields on commercial property range from 4.5% to 6% in the major Australian property markets and over 7% in secondary Australian property markets (Adelaide, Brisbane and Perth). and with sub 3% interest rates, investors can enjoy income returns of over 6% on a cash on cash basis.

CBRE research shows a 30% increase in offshore investor demand in Melbourne alone over the past financial year. Demand was led by investors from China, Hong Kong and Singapore. Capital inflows into Australia have predominantly came from North America and Asia during this period. Since June 2019, CBRE investment sales data shows that approximately 80% of transactions involved sales to offshore investors with a significant number originating from Hong Kong and Singapore. Lewis Tong a Director of CBRE Melbourne, stated; “over the past two months the CBRE team alone has sold 16 properties, including a mix of retail, office and development sites, 13 of which have been purchased by Asia-based investors.” Mr Tong went on to say “while it is difficult to pinpoint the exact reasons for the increase in sales to this buyer pool, strong anecdotal evidence suggests the recent result of our federal election and political instability in Hong Kong have been important, with the later perhaps further entrenching Melbourne as being a safe haven choice”. This demand is evident in other property markets around Australia. Mark Wizel a Senior Director of CBRE further quoted “other motivating factors for Asian investors putting their money in Australian commercial property had been the fall in the value of the Australian dollar, the decline in residential property clearance rates and education and family links.”

Based on the strength of capital inflows, stable political environment, low interest rates, falling 10-year government bond rates, and other strong real estate indicators, we expect further yield compression and rising rents to create a strong opportunity for continued capital growth and the creation of stable long term income streams for investors. On a global scale, Australia’s average income yield tracks circa 2% above other global markets. This yield gap is likely to see 0.25% to 0.5% downward movement in yields over the next 12 months.

Key real estate indicators and Australia’s economic and political outlook establish Australia as a destination of choice for global investors. Fidinam Australasia Real Estate, part of the Fidinam Group Worldwide, is well positioned to assist investors looking to acquire property in Australia. The local team have been involved in well over $1bn AUD of commercial property transactions across all states of Australia. In addition we also manage a diverse property portfolio of over $400m AUD, in Sydney and Melbourne, where we provide strategic real estate services with a core focus on revenue and value creation. Should you want to learn more about investing in Australia, already have investments in Australia and or need some specific real estate advice as an owner or occupier please do not hesitate to reach out to your client relationship manger or please email Matthew Burrows, Managing Director Fidinam Australasia Real Estate matthew.burrows@fidinam.com.

 

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