The launch this week of yet another property fund that gives Australians access to the European market is indicative of a widespread belief that the home market is becoming saturated.
Investa Property Group has teamed up with a German fund manager, Deutsche Gesellschaft Fur Immobilienfonds (DEGI), to build a platform for wholesale investors to access the potentially lucrative European commercial property market.
The introduction of real estate investment trust (REIT) legislation in Germany and the United Kingdom provides Australian investors with a viable alternative to a domestic listed property trust (LPT) market that many believe has reached its full valuation.
Melbourne-based research house Managed Investment Assessments (MIA) this month forecast a sharp downturn in the domestic LPT market by 2010.
"A higher interest rate environment, any decline in demand for direct property or a change in global investment flows will result in falling property values that will have a negative impact on the listed property trust market and, by extension, the property securities fund sector," MIA director Anton Lawrence said.
Asset Super chief executive John Paul also takes a sceptical view on the home LPT market. His super fund recently overhauled its Australian LPT manager line-up and dramatically increased its exposure to international property.
Paul said the home market was becoming increasingly compressed and as a result the fund had signed up Lasalle Investment Management and Perennial Investment Partners to run a $39 million international LPT.
As to where in the world the best opportunities lie, most investors are bullish towards Germany and Japan.
"Germany is the most interesting market at the moment because the Government and public corporations own a huge amount of the real estate and they are selling it to pay down debt," Joe Harvey, senior portfolio manager at Cohen and Steers, the largest REIT manager in the United States, said.
Harvey's comments are backed up by research from Citigroup in November that estimated the German REIT market could be worth up to Eu57 billion by 2010.
For BlackRock Realty managing director Stephen Meise, who is marketing an unlisted global property trust to Australian investors, Japan holds the key to lucrative returns.
"Japanese property went through a lost decade with little or no capital expenditure. There is a serious shortage of investment grade class A buildings," Meise said.
"There are a lot of bad buildings in good locations. We focus on renovating class B buildings to A standard and then looking at an exit strategy."
However, it is overseas commercial rather than overseas retail property that is proving popular with investors.
Australia's second biggest investment bank, Babcock and Brown, and property Group GPT were forced to shelve plans to create a joint European retail property fund in December after a lacklustre response from investors.
