Sovereign pension funds are buying into Australian direct property developments, including the high-profile Barangaroo development, in a bid to grow members' investments, with local fund managers also getting in on the act.
Just this month, the National Pension Service of Korea agreed to co-invest $360 million for 50 per cent ownership in 13 industrial properties in Australia with Dexus Property Group. The partnership could more than double in the next five years and fund further industrial property developments, Dexus said.
In July, the Canada Pension Plan Investment Board (CPPIB) announced it had formed a joint venture with Lend Lease and the Australian Prime Property Fund Commercial to develop and hold two waterfront office towers at the Barangaroo South Project in Sydney.
The joint venture is committing $2 billion, with CPPIB committing $1 billion of the equity.
"This investment supports our real estate strategy to acquire premium, long-term assets in key global markets," CPPIB real estate investments senior vice-president Graeme Eadie said.
The Singapore Government Investment Corporation is also a long-term participant in Australia's property market as is the Abu Dhabi Investment Authority, one of the world's biggest sovereign wealth funds.
Attractive yields when compared to other markets are drawing investors here. In addition, the Australian economy was regarded as more stable than others in the region, according to industry experts.
In value terms, the most recent Foreign Investment Review Board annual report revealed almost a quarter of foreign investment applications were for real estate purchases in 2010/11.
The United States was the largest source of proposed foreign capital for investment in Australian property. The other major sources of proposed investment capital were the United Kingdom, China, Canada and India.
Russell Investments' 2012 Global Survey on Alternative Investing found institutional investors around the globe were attracted by the relative stability of property. In addition, income streams derived from property are looking attractive to investors in the current low-yield environment.
The survey of 146 institutional investors found 66 per cent of respondents held direct property investments. Allocations to direct property investments, standing at 23 per cent, are expected to increase in the near future to around 25 per cent.
"The most important drivers of real estate decisions continue to be income and portfolio diversification," the report said.
Local fund managers are also attracted to direct property assets. Construction and Building Union Super and AustralianSuper planned to double investments in offices, malls and retirement villages in the next two years, according to a recent Bloomberg report.
Frontier Advisors director of consulting Fiona Trafford-Walker said many of her super fund clients had had greater allocations to direct property for many years than the industry average.
"These have proven to be very good investments as well as demonstrating greater stability in return compared with equities. However, they are relatively illiquid and so need to be thought of as long-term commitments in a portfolio," Trafford-Walker said.
"That's not to say they are not saleable, but the lead time for sale can be long and so investors need to plan well ahead unless the market is frothy and there are many buyers willing to pay high prices."
