Australia’s shock federal election result could be the catalyst for new overseas real estate investment into the country, experts say.
With certainty back in the market with a majority government, real estate funds may choose to divert capital to Australia from less stable global investment destinations, according to Simon Storry, head of International Investments, Australia, JLL.
“Some of the key reasons investors target Australia is because of transparency, liquidity and political stability. We’ve always had the transparency and liquidity, and now as a result of the election we’ve got the stability. It adds weight to the rationale for investing in Australia,” Storry says.
Australia’s attractiveness stands out against its traditional capital rivals the UK and U.S., currently clouded by Brexit and a global trade war with China, respectively.
“With uncertainty in those markets. A lot of groups are focusing on stable markets with sound growth prospects like Australia.”
New buyer confidence
Australia’s new political phase comes on the back of a significant flow of cross-border investment into Australia in 2018, equating to A$9.46 Billion – 48.4 percent of all transactions by value – prompted by low interest rates and a cheaper dollar, alongside the fundamentals of the Australian market.
“Our office markets are in strong shape, with continued rental growth, nevertheless investors will be glad that the potential for economic bumps brought on by a change in government are no longer.”
The immediate bounce back in the Australian share market should also have a positive knock on effect in real estate markets, says Marty Janes, head of Metropolitan Sales and Investments, JLL.
“Renewed business confidence will lead to greater business activity, with a flow-on effect on office leasing and values,” Janes says.
Particularly in the metropolitan office markets, there are likely to be fewer delays in decision-making around purchases, adds Janes.
“We’ve seen firm pricing in metropolitan office markets in Sydney and Melbourne – and the confidence has flowed into fringe markets – but the run hasn’t been as big as we’ve seen in the large scale office market. You might put this down to delayed decision making because of access to debt. I think we’ll see that issue ease up.”
Tax issue on build to rent
A hot topic for offshore investors placing capital in Australia is the government’s tax regime around build-to-rent, particularly its decision to retain a 30 percent withholding tax on income from investments in this type of housing, hindering the sector’s ability to become a distinct asset class.
Industry body, the Property Council of Australia, has lobbied for a 15 percent tax – the concessional rate that applies to housing deemed ‘affordable’, as well as student accommodation – in order to unlock institutional funding and plug a gap in Australia’s housing needs.