Foreign property investment to run strong

Foreign property investment to run strong

So remember how 2016 was meant to be the year the housing bubble started to seriously deflate?​

The level of foreign investment in Australian commercial property hit a record $10 billion last year and is not expected to peak any time soon as international buyers scan the local market and finance rates remain low.

An analysis of the 2016 transactions carried out by JLL for The Australian shows Singaporean buyers were particularly active during the year, leading two of the top three most valuable deals.

ARA Property Group paid Dexus $578 million for the Southgate complex in Melbourne in ­August. Final settlement is due by July. The riverfront complex is made up of the HWT Tower and IBM Centre, as well as a popular shopping centre and carpark.

The Woolworths headquarters at Bella Vista, in Sydney’s northwest, was sold for $336.45m to South Korea’s ­Inmark Group, while Singapore’s Ascendas-Singbridge paid $313.2m for Innovation Place, at 100 Arthur Street in North Sydney.

JLL estimated foreign companies were involved in 40 per cent of total transactions last year. Offshore investors sold $2.2bn worth of assets in 15 transactions over the 12 months.

JLL chief executive Stephen Conry also expected the overseas ­interest in Australian property to remain strong in the year ahead, despite growing valuations.

“The offshore investors have accounted for a rising proportion of major transactions in recent years,” Mr Conry said.

He said 2016 “was no exception, with foreign investors accounting for a record number of transactions across the Australian commercial property sector. We are detecting no decline in offshore interest in the Australian market, but the limiting factor is a scarcity of stock.

“We are certainly finding that offshore investors are willing to broaden their mandates, both in terms of locations and sectors.”

Sydney’s diversified inner-city property market remains one of the best performing in the Asia-Pacific region after rents surged across the board in the past year.

A report by Colliers International found Sydney’s premium net effective rents rose 28.4 per cent in the year to September, well above the 4.7 per cent annual average growth rate over the past decade. A-grade rents jumped 27.8 per cent while B-grade rents rose 33.7 per cent.

Colliers said lower-tier Sydney rents were elevated because several buildings were acquired to make way for the NSW government’s infrastructure developments across the city.

Colliers International capital markets managing director John Marasco said Australia’s political stability meant it would remain an international capital destination.

JLL managing director Stephen Conry. Picture: Mark Cranitch.

“It’s safe to say that 2016 has dealt its fair share of shocks to the global economy, with the standouts being Britain’s referendum to leave the European Union (Brexit) and a pending Trump presidency,” Mr Marasco said.

“These economic shocks further cement Australia’s position as an appealing global destination for foreign capital deployment.

“Australia has and will continue to resonate with foreign investors due to our consistent economic growth through cycles, transparent financial system, together with sound political and legal frameworks.”

JLL’s head of international investment Simon Storry said it was likely that Japanese buyers would provide the next wave of foreign capital into Australia.

The Japanese Government Pension Investment Fund decision to increase its risk appetite is expected to prompt it to look offshore and ramp up its commercial property exposure.

It has cut its holding of traditional low-risk bonds and analysts believe it will become more of an active international investor.

“Asian investors that remain the most active are from Singapore and China but we are starting to see a greater level of interest from Japanese firms, both from a debt and equity point of view,” Mr Storry said.

“GPIF is reviewing its strategy for investment in property given the size of the fund. This alone could have a major impact on Japanese investment in Australia.”