Foreign investors will continue to be major players in Australia's commercial property market this 2016 after staking on half of Australian office towers sold in the previous year, Sourceable reports.
Global real estate group CBRE has recently released their data revealing that a total of 54% of office turnover in Australia in 2015 were attributed to overseas investors - it is the highest figure recorded since the data collection started.
Overseas investors' strong appetite for Australian commercial property is not waning soon, considering the showcase of stability in factors underlying the present scene, according to Rick Butler, CBRE senior managing director of capital markets.
"There's nothing changing - our cap rates and yields are higher than elsewhere, and we have a transparent environment where you can do a deal and sue someone for the rent," said Butler. "I can't see any change on the horizon."
What make foreign purchasers attracted to the Australian real estate are strong yields paired with low interest rates, says Butler .
"Over my career, which started in 1983, it used to be upside-down, with interest rates that were higher than yields, but we're now suddenly in a situation where our yields are higher than our interest rates," he said. "The facts are that are the moment you can buy something on a return of, say, six per cent and pay all in three per cent or three-and-a-half per cent interest, you actually have a positive cash flow on the portion you borrow on."
Further boosting Australian real estate's appeals to investors from around the world is the fact that property markets outside the country are only providing tepid returns at the moment.
"In Shanghai, the cap rates or yields are at two or three per cent, and Hong Kong and Singapore are the same. Germany also has very low cap rates, while in Switzerland you're actually paying half a per cent to put your Swiss francs in the bank," said Butler. "It's negative returns.
"As a result, inbound investment from the EU - the Germans and Swiss - has been quite strong alongside the Asian countries. They're buying because they can't get returns for their pension contributors or open-end fund contributors back home, when they're at five to seven per cent in Australia.
"An open-ended German union fund bought 155 Clarence St. in Sydney, while we did a couple of deals for Credit Suisse last year, and we'll do more this year."
Investors hailing from North America also likely have their eyes set on Australia's commercial property market with the less-than-impressive conditions in their own markets, adds Butler.
"North Americans are also escaping low cap rates in their own markets to buy down here," he said. "The US is growing, and you also have the Canadians, with Montreal's Ivanhoe Cambridge doing a major deal here last year."
While other major economies also offer stability and transparency, the Australian market also has liquidity to offer on top of those.
"If you look at the Australian market and compare it to Montreal or Toronto, New York or Tokyo, you'll find that the big difference is the liquidity - it's just unbelievable how many transactions we do a year compared to most countries," Butler said. "So that's a big part of why people come here."
If there's anything that should pull the rising foreign investment in Australian commercial real estate, it would be the changing interest rates and its impact on purchasers that hedge, Butler points out. This however won't be of major factor for many global investors.
"A potential downside is interest rates starting to move and the effect on countries out there that must hedge. If they're borrowing, the borrowed portion is a natural hedge, but the equity portion they hedge, and it costs around two per cent.
"But that's only for people who must hedge - a lot of global institutions are buying all over the world, so if a currency's upside-down in one place they don't need to sell until it recovers, and can still sell something elsewhere."
