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Australia continues to attract foreign capital

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Lower interest rates and the loosening of banks’ lending requirements amid the local and global market challenges, which included a major federal election, the ever-changing economic landscape, global uncertainty and volatility, and a general lack of business confidence have proven 2019 to be an interesting year for the Australian property sector.

The RBA believes rates are about right although do reserve the right to ease if required. In light of this, the economy looks set to be in a period of low for longer interest rate settings, in an attempt to stimulate the economy from a GDP and employment and inflation leading to wages increase perspective.

According to Paul Craig, CEO of Savills Australia and New Zealand, the property market in 2019 has fundamentally stood tall and demonstrated its resilience.

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“This low for longer interest rate environment means real assets and in particular Real Estate, will continue to be well sought after as investors chase yield,” Mr Craig said.

“In particular, Australia will continue to attract foreign capital supported by a cheap [Australian dollar], positive yield spreads to debt enabling positive funding from leverage and the lag effect of cap rate compression due to some skepticism of further runs in yield as we hit all-time yield lows/highs in valuation.

“2020 will see the commercial office sector continue to compress, supported by limited supply and developer discipline as CBD tenants begin to push their boundaries of space capacity. A lot of our clients will continue to favour the Sydney and Melbourne CBD, North Sydney, Parramatta and interestingly are beginning to think Perth has reverted too far and may provide risk opportunities. As with Perth, Brisbane could also provide risk opportunities as vacancies contract and new development [remain] scarce.

“Industrial, but more so logistics, will continue to attract capital as it continues to support the e-commerce thematic. We are concerned about the low growth in rents, however the inbuilt rent bumps of [2 per cent to 3 per cent] will support overall.

“Retail is the interesting asset class and perhaps with tough retail sales turnover, a forgotten asset class with opportunities. With centres such as Marion in SA and Booragoon WA recently trading relatively easily for their financial size and demand for non-discretionary retail still sought after (especially by private investors and syndicates), there remain no forced sellers in response to financiers requirements, although there have been funds withdrawal demands that may have prompted transactions.

“Retail is worth looking at, especially supported by population densification and rising or changing socio-economic conditions of the surrounding demographic.” 

The hotel and pub sector will remain strong in 2020. The Savills Hotels Australian team has transacted over $1.7 billion worth of hotels, pubs and leisure real estate and valued over $4 billion of hospitality assets in just the past 12 months, highlighting the global and local appetite for this asset class.

“Looking back at our transactions and completions this year, we have certainly had some significant highlights. Our capital transactions team successfully completed the sale of 80 Collins Street in Melbourne for $1.476 billion on behalf of QIC, [was] responsible for the sale of 133-145 Castlereagh Street, Sydney to Stockland for $347 million and in Perth, assisted GDI Property Group in the purchase of 19 DVG Automotive Group dealerships across five metropolitan suburbs within Perth for $98 million. Our project management team also achieved practical completion of 60 Martin Place, involving the construction of over 40,000 square metres of premium quality office and retail space Sydney,” he said.

 

Australia continues to attract foreign capital
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James Mitchell

James Mitchell

James Mitchell is the editor of the Wealth and Wellness suite of platforms at Momentum Media including Investor Daily, ifa, Fintech Business, Adviser Innovation and Wellness Daily.

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