Banking crisis could see reduced investment in Australian property

The turmoil across the US and European banking sector could see reduced investment in Australian commercial and residential property according to an expert.

Ray White Commercial, Head of Research, Vanessa Rader said that while foreign investment into Australia has been growing, higher borrowing costs and market uncertainty could lead to a slowdown.

Ms Rader said the US continued to be the most active source of investment capital into Australia, growing 45.2 per cent compared to the prior quarter. 

“Historically, the US is the largest investor of commercial property into Australia, last year purchasing $118.9 billion, up from $57 billion in 2020/21,” Ms Rader said.

“Canada also is a strong investor into Australian property, with a strong appetite for quality, trophy CBD office assets. 

“Given the weight of funds available via Canadian pension funds and listed vehicles we have seen fluctuating results in line with the larger sales Canadian funds are known to be involved in. 

“It is anticipated that financing will become a stumbling block for some larger institutional vehicles, which may see a stabilisation of investment out of North America.”

According to Ms Rader, Singapore has increased its level of investment over the past 18 months, particularly in the hotel and leisure sector. 

“Over the September and December quarters, investment remained stable totalling $10 billion, after $24 billion in sales during the prior financial year,” she said.

“China/Hong Kong’s investment into commercial has decreased over the past few years, however, this current quarter has shown strong results with retail and hotel being the asset type of interest.”

Ms Rader said South Korea was also a market that has been increasing its holdings in Australia, across all asset classes. 

“This period we have seen $4.2 billion in investment already, approaching the full 2021/22 results of $4.5 billion,” she said.

“These markets are anticipated to continue to seek out investment opportunities this year and may favour the Australian market to the North American and European markets given banking uncertainty.

“Japan may continue its quiet start to the financial year, with just $1.4 billion changing hands in 2022/23 after achieving $7.1 billion the year prior.”

Across the residential sector, Ms Rader said she was expecting to see an influx of investment from Chinese and Hong Kong investors, given the change to online study requirements in China.

However, Europe has been reducing it investment into Australia more recently, which is expected to continue during this year as the banking crisis unfolds.

“The United Kingdom has only recorded $700 million in sales during the December quarter, with full-year results anticipated well behind the $6.5 billion recorded in 2021/22,” Ms Rader said.

“Markets such as Germany have been quiet this financial year with Spain and Czech Republic showing some increase in investment across various smaller assets.”

The latest data from the Treasury shows that investment into commercial property requiring Foreign Investment Review Board approval stood at $19.3 billion during the December quarter.

While residential property saw just $1.4 billion of foreign investment.

Office and industrial were the most active asset types which transacted over this period while investment into retail and development sites had increased in the prior quarter.

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