PROPERTY is the second-biggest winner of cash inflows, after the resources sector, as superannuation and sovereign funds and wealthy private investors direct cash away from the volatile sharemarket.
In the recent reporting season, real estate investment trust managers said they had experienced significant cash inflows from a variety of large and small investors seeking a haven.
The head of Real Estate and Infrastructure at Evergreen Capital, Andrew Smith, said that after three hard years of consolidation by the REITs, they were now attractive for investors looking for defensive investments.
"Boring is the new black. The trusts are now lowly geared, well managed and focused on Australia, which has made them very attractive," he said.
"We believe that by the end of this year, with returns at about 6 to 7 per cent, institutional allocations to the property sector will increase."
Confirming the flow of cash are the latest figures from the Australian Prudential Regulatory Authority, showing total superannuation assets increased to $1.4 trillion in the June 2012 quarter.
Over the 12 months to June 2012 there was a 3.7 per cent increase in total estimated superannuation assets.
Brokers say a large portion of these assets flow into the stockmarket and will support the listed REIT market.
These investments will also be via takeovers such as the bid by Brookfield for Thakral Holdings, which owns Wynyard House in George Street and the Menzies Hotel.
The joint managing director of Charter Hall, David Harrison, said at the group's full-year results briefing that an additional $319 million of cash has flowed into the group's stable of listed and unlisted funds in the past eight months.
"In term of equity flows in wholesale funds we're really seeing that the traditional pooled and co-mingled sector [listed and unlisted funds under one manager], is still the largest sector in Australia and will continue to attract significant amounts of capital," he said. "Just in the last couple of months there have been oversubscribed raisings.
"We're seeing a movement of capital, particularly in the pension fund sector, from defensive asset classes such as cash and bonds particularly, and moving into another asset class - property."
Super funds are also moving into owing assets. The chief executive of Local Government Super, Peter Lambert, which owns many Sydney properties including 120 Sussex Street, said property was necessary for a diversified portfolio.
"There has been an appreciable swing into cash and property, which is seen as a growth asset," he said. "Direct property is a mixed bag as bank financing is still tough. But demand is still high for good quality buildings to which the owner can add value."
Direct investment in Australian real estate has risen from $2.59 billion in the first quarter of 2012 to $5.63 billion in the second, DTZ and the Australian Property Council said.
DTZ's Investment Market Update for the second quarter to June 30 said the number of deals increased almost 25 per cent quarter-on-quarter.
The average deal size increased 75 per cent to $77 million. The office sector accounted for 44 per cent, or $2.49 billion, of activity.
The firm said foreign investment into Australia accounted for 46 per cent of total investment in the second quarter, up from 24 per cent in the first quarter.
Private funds and high net worth individuals remained net buyers of real estate to June 30, according to the report, committing $1.24 billion. Institutions invested more than $1 billion over the second quarter.
Frequently Asked Questions about this Article…
Why are everyday investors and funds moving cash into Australian real estate right now?
The article says property has become a safe haven as superannuation funds, sovereign funds and wealthy private investors steer cash away from a volatile sharemarket. REIT managers reported significant inflows, reflecting demand for defensive assets after several years of consolidation in the sector.
Are REITs (real estate investment trusts) a defensive investment option for conservative investors?
According to Evergreen Capital’s head of Real Estate and Infrastructure, REITs are looking more defensive—‘lowly geared, well managed and focused on Australia’—making them attractive to investors seeking stability. The article also cites an expectation of returns around 6–7% by the end of the year, which may prompt more institutional allocations to property.
How much superannuation money is available to support the listed REIT market?
APRA figures in the article show total superannuation assets rose to $1.4 trillion in the June 2012 quarter, a 3.7% increase over the prior 12 months. Brokers quoted in the piece say a large portion of these assets flows into the stockmarket and will help support the listed REIT market.
What recent takeover activity highlights appetite for Australian property assets?
The article mentions a takeover bid by Brookfield for Thakral Holdings, which owns notable Sydney assets such as Wynyard House on George Street and the Menzies Hotel—an example of how investors are using takeovers to acquire real estate exposure.
How much new capital has Charter Hall seen flow into its funds?
Charter Hall’s joint managing director, David Harrison, reported an additional $319 million of cash had flowed into the group’s listed and unlisted funds over the past eight months, and he noted oversubscribed raisings in recent months.
Is direct investment into Australian real estate increasing, and which sectors are driving activity?
Yes. DTZ and the Australian Property Council reported direct investment rose from $2.59 billion in Q1 2012 to $5.63 billion in Q2. Deal volumes increased almost 25% quarter-on-quarter and the average deal size jumped 75% to $77 million, with the office sector accounting for about 44% ($2.49 billion) of activity.
How significant is foreign investment in the Australian property market right now?
The DTZ update cited in the article says foreign investment accounted for 46% of total real estate investment in the second quarter, up from 24% in the first quarter—showing a notable rise in overseas capital entering the market.
What are the challenges or risks for everyday investors considering direct property investments?
The article notes direct property can be a ‘mixed bag’ because bank financing remains tough, which can complicate purchases. However, demand is high for good-quality buildings to which owners can add value, so financing constraints and asset quality are key considerations highlighted by industry sources.
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