In an article that was recently published in The Australian, Nerida Conisbee, chief economist at REA Group, said Australian property had become so attractive to foreign buyers that the dominance of Aussie investors in local commercial property was “slowly but surely coming to an end.”
Foreign investors are increasingly looking to Australia for stable investments in part due to growing political uncertainty in other major markets. Additionally, overseas groups come to Australia in search of a more balanced portfolio or their first foray into the Asia-Pacific market.
In contrast, the amount of commercial property being snapped up by Australian groups has shrunk significantly over the past decade.
In 2006, more than 80% of purchases by volume were made by domestic investors, but last year, it was less than 60%, according to data from REA Group. The most dominant investors now come from China, the United States, and Singapore, though other countries in the Pacific Rim (such as South Korea and Japan) have also made significant inroads into Australian commercial property.
These figures do not take into account the amount of funding Aussie investors are getting from offshore sources through channels such as capital partnering.
“Although impossible to calculate, if [capital partnering] is taken into account, the amount of foreign money buying commercial property is likely to be far higher. In fact, it’s safe to estimate that well over a half of commercial property is likely to now be purchased using overseas funds,” Conisbee said.
Unfortunately, this spells bad news for domestic investors as they’ll find it increasingly hard to acquire good local stock.
While historically, the gap between the Sydney CBD and those found in other major real estate havens, such as London and New York, has been wide, this gap is beginning to close very quickly.
“Investors now see Sydney on par with these other cities and are prepared to spend big to get into the market. For Australian investors used to much higher yields and greater stock availability, sorry, but competition is going to be a bit tougher now. This is going to make it much more difficult to expand portfolios and achieve high returns.”
While Aussie investors are now largely absent from overseas property markets, intense competition at home could force greater numbers to seek lucrative investments abroad.
“I predict we will see more [Aussie] groups entering foreign markets in 2017 [but] with so much political turmoil outside Australia, they will need to tread carefully.”
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