Roy McDonald Examines Australia’s Commercial Real Estate Market And The Surge Of Foreign Investment
Investment professionals like Roy McDonald report that Australia’s commercial real estate market is ripe with opportunity for foreign investors. Overseas buyers from Asia, primarily China,are now the biggest foreign investors in the market, driven by tight purchasing restrictions at home and an appealing buying situation abroad.
It’s clear that Chinese investors see opportunity in Australia’s commercial real estate market. A CBRE Group Inc. survey found that 18 percent of investors believe Australia is the most attractive country in the world for property investment. Sydney and Melbourne were considered the third and fourth most attractive cities for investment. In those cities, home prices rose 13.4 percent and 11.9 percent respectively, according to statistics from the RP Data Home Value Index.
Numbers posted by the Foreign Investment Review Board agree. Chinese investment in all forms of Australian real estate swelled 42 percent in 2013, reaching $5.9 billion. Meanwhile, U.S. investment plummeted by 85 percent down to $4.4 billion.
“While first time private investors may start by looking at residential investments, the more experienced investors have a broader appetite, and we’re receiving interest across a range of asset classes from farmland and wineries through to retirement, hotel, retail and large office building assets,” said Steam Leung who heads up the Asian Division at Colliers International and is also Director of Investment Sales. “However the most common enquiries are seeking Commercial A and B-grade offices and residential sites.”
But why are investors so interested in Australia? Factors affecting Chinese investors both home and abroad are propelling the engagement, explains financial expertRoy McDonald.
“A promise of high yields is always a big attraction for overseas investors. With yields over six percent, the market here offers better returns than can be found in Asia,” Roy McDonald explains. “Many Chinese investors are finding more appealing deals in Australia than anywhere else. This is a trend that I expect to continue into the future.”
Indeed, investing in Asian real estate is not quite as appealing. Cities like Taipei, Tokyo and Hong Kong see yields of about three percent, according to The Australian.Last year, the government enforced stringent rules to control the housing market, resulting in loss of profits and higher debt ratios, the South China Morning Post reports. Among the changing guidelines is a 20 percent tax rate on capital gains, which was announced in the past but will now be strictly enforced.
Additionally, a number of major Chinese cities and provincial capitals have tightened property prices, restraining lucrative ventures. Cities including Shanghai, Shenzhen and Guangzhou have also set higher minimum down payments for individuals who purchase a second home. Investors will have to pay a 70 percent down payment on additional properties.
The slumping economic outlook in China is also drivinginterest. According to Colliers, GDP fell in 2013 to 7.5 percent in the second quarter, down from 9.5 percent in 2011. Meanwhile, Chinese currency, RMB, appreciated compared with foreign currencies, which makes overseas investments more profitable.
There’s been plenty of speculation about what effect this foreign investment has on Australian homeowners. Credit Suisse determined that these Chinese investors are purchasing about 20 percent of new housing and will buy another $44 billion worth of property in the next seven years, nearly doubling their purchasing rate from the prior seven years.
Some believe this is creating problems for locals who struggle with the rising property prices. In a recent Wall Street Journal article, it was reported that the Australian Parliament’s House Economics Committee will investigate whether foreign investment is making housing unaffordable for Australians.
Stephen McNabb, who heads up research at CBRE, suggests that foreign investment will slow down overall, but Asian interest is still growing and continues to be the main source of overseas investors. That being said, he suggests that the nature of their investments will be changing. While development sites around Melbourne received $1.3 billion in the last two years – primarily from Asian investors – those buyers will be soon be refocusing their interest on passive investment opportunities rather than development.
“The market is going to move in the next two years and the game changer is likely to be the Chinese pension funds and major institutional investors. While the pioneers have been the private, this is giving confidence to the institutional investors to follow suit and attention is shifting to core and value-add assets,” said CBRE City Sales Director Mark Wizel.
Investment advisor Roy McDonald agrees that foreign investment will be shifting, but he expects Chinese interest to remain strong.
“Prime real estate returns in Australia are irresistible to foreign investors who lack investment opportunities at home,” McDonald claims.
Real estate experts agree that Australia’s commercial real estate market is flourishing and brimming with investment potential for investors at home or abroad. High returns and skyrocketing prices have created an appealing market and high level of confidence, while strict property purchasing rules in China are further driving the flood of investment. Experts like Roy McDonald suggest that foreign investment will remain strong as long as these elements persist.