Property firms are seeing signs of warming from investors after a lengthy period of silence, and are actively trying to woo instos for the first time since the global financial crisis.
In the past week, two leading Australian property companies – Charter Hall and APN – have launched new funds, both pointing to a marked alteration in investment climate.
“Charter Hall is expecting improved equity inflows from retail investors as cash and term deposits are reallocated towards higher income yielding investments in 2013, such as direct property,” said a chirpy statement accompanying Charter hall’s launch of its second direct industrial property fund (DIF2).
“Unlisted direct property is expected to be a popular alternative for investors searching for higher yielding investments,” it continued. “The falling cash rate, currently sitting at just three per cent, coupled with renewed investor confidence, has piqued many investors’ interest in direct property, which provides a starting yield to investors of approximately eight per cent for core risk assets with moderate gearing, supported by good tenant covenants and long leases.”
Stephen Lawford of APN also lists the “search for yield” as the motivating factor for the evident – or at least expected – retreat into bricks and mortar investment.
“Investors want yield and they’re not getting it in term deposits,” Mr Lawford told InvestorWeekly.
“The A-REIT market rallied very strongly at the end of last year off the back of the search for yield, and now it’s starting to happen to illiquid unlisted property,” he added.
“Institutional investors, in particular, have been coming back into this market: both ‘offshores’ and the Aussie super funds, as well as pension funds and REITs, and there are also more syndicators and private clients interested.
“There is definitely a noticeable spike in appetite for this type of product after a few years of being a bit on the nose.”
APN last week launched its APN 541 St Kilda Road Fund, seeking to raise capital for investment in a commercial property outside the Melbourne CBD. This is the first fund launch APN has embarked on since the global financial crisis, Mr Lawford explains; a testament to the changing sentiment, or at least to the perception among property companies that it is changing.
Speaking at the launch of DIF2 in Sydney on Tuesday 19 February, Charter Hall research manager Chris Freeman said there was also a specific link between the increasingly rosy outlook for direct property and the performance of Australian superannuation funds.
“Australian super funds are a major driver of investment property demand, and have shown net asset growth of approximately 10.4 per cent annually over the past 10 years to now be off a base of $1.46 trillion,” Mr Freeman said.
This amount is now almost identical to total Australian GDP, which has grown at just over 3 per cent during the same period.
“As unlisted property significantly outperformed shares during the GFC it is only in recent periods, with a recovery in equity markets, that super funds are needing to again increase their property holdings to maintain an approximate 10 per cent weighting to the sector,” he said.
“Now, with this coming from a massive asset base, at a time when A-REITS are trading above net tangible assets – and have effectively moved from being net sellers to buyers – unlisted property may be a major beneficiary as domestic funds compete with international buyers for fewer assets.”
