Even as property industry confidence tumbles, foreign investment dollars are pouring in as new figures show that Australia is the most popular market for overseas property investment in the Asia Pacific region.
However, near-term prospects for the local commercial property going forward remain subdued amid global economic uncertainty, a subdued labour market and challenging financing conditions.
Speaking at CBRE’s Market Outlook breakfast in Sydney on July 23, the firm’s Head of Asia Pacific Research Dr. Nick Axford says that with $US 13.6 billion, Japan has been the most active investment market overall throughout the region for property and real-estate transactions in the year to June 30, followed China ($US11.8 billion) and Australia in third position at $US10.8 billion.
If only transactions from overseas buyers are taken into consideration, however, and flows into China from Hong Kong are excluded, Australia was the top investment destination over the past year.
“What’s notable is that if you exclude flows of capital between Hong Kong and China, Australia has been the most popular cross border market in Asia Pacific over the last twelve months,” Axford says. “This is particularly the case for capital coming into the region from elsewhere in the world – a third of which has been spent in Australia.”
Axford says that despite the perceived currency risk and high cost of finance, Australia is seen as an attractive investment destination because it is a mature, transparent, liquid real estate market with relatively healthy economic prospects.
Australia also remains attractive in terms of pricing and investment returns, with yields on prime office space in Australian capital cities remaining above many other cities in the world.
Looking ahead, CBRE head of research for Australia Stephen McNabb says the Australian commercial market has sound fundamentals with low levels of supply compensating for weaker demand and property in our nation benefiting from its ‘bond-type investment’ status arising out of its attractive income generating potential.
However, neither the Asia Pacific region nor Australia in particular will be immune from a global weakening of office demand caused by global economic uncertainty, subdued employment growth and a lack of financing for large projects.
For this reason, near-term prospects for our local real-estate market are not good, though the market offers attractive opportunities for the longer term.
“While the Australian property market looks reasonable from a fundamental perspective, prevailing global risks are likely to override domestic factors in the next year.” McNabb says. “However, the Australian property market offers an opportunity for long term investors to leverage into improved global sentiment which is likely to benefit all risky asset classes.”