International investors of Australian property face tough competition as Australian real estate investment trusts (AREITs) resume purchasing in the local property market.
“AREITs are closing the gap to net tangible asset (NTA), if they haven’t already, so they are starting to be net buyers of property again,” The Trust Company general manager of corporate clients Andrew Cannane told InvestorDaily.
“So I expect that it will be relatively more difficult for foreign investors to compete for property acquisitions against the re-emerging Australian super funds and AREITs looking to finally add to their portfolios.”
Following the global financial crisis, Australian super funds were overweight property so were unable to allocate capital and AREITs were engaged in divestment programs, allowing foreign investors to expand in the market.
“I think you’ll [continue to] see foreigners interested but they are not going to buy as well as they did. When the Australian REITs were doing their divestment programs and there was some distressed selling, there were some good buying,” Cannane said.
He explained that while superannuation funds and AREITs sat out of the market, investors such as Singapore REITs, regional sovereign wealth funds, global private equity firms, Canadian pension funds and German funds managers all took the opportunity to buy Australian property.
“We’ve seen well over $7 billion of foreign direct investment into prime Australian property over the past 3 years where the main sellers have been AREITs, Australian property companies and unlisted property funds,” Cannane said.
But, foreign investment has strengthened the property market in Australia, he explained.
“I think what it has done is it has meant that property prices did not go down as much as feared as foreign investors applied a floor to our asset pricing – and prices since then have gone up again,” he said.
