The Australian property market remained optimistic during the financial year ending June 2024, with a total of c. $10.52 billion invested by overseas investors, said Michael Coverdale, M3 Property Managing Director.
The Australian property market remained optimistic during the financial year ending June 2024, with a total of c. $10.52 billion invested by overseas investors, according to new research from M3 Property.
The Foreign Capital Investment in the Australian Property Market for FY24 report details the changes in foreign funds flowing into and out of Australia’s property market during the last fiscal year. While overall investment in FY24 is down on the approximately $15 billion invested in FY23, the $10.52 billion result is still considered satisfactory, given the pressures of inflation, geopolitical instability and supply chain issues the global economy stared down over the same period.
Foreign investors represent a large volume of demand for the Australian property market, mainly because of their large funding pool and risk tolerance, with heavy investments in core and alternative assets. Investors from the USA, China and Singapore have traditionally injected the most funds into Australian real estate, however changes in FY24 saw the re-emergence of Japan as a powerful investment force.
Michael Coverdale, Managing Director, QLD at M3 Property said, “The year ending June 2024 was notable for the changes in the mix of overseas investment sources into Australia. While our real estate market remains solid, it’s not as robust when compared with previous financial years. We’re seeing significant offloading of assets from countries facing their own economic headwinds as well as small capital allocations because of liquidity reasons.”
However, a positive change for the local property market is expected in FY25, amidst shifts in macroeconomic conditions here and around the world. With an Australian exchange rate favourable to cross-border investors and likely changes to the Reserve Bank of Australia’s monetary policy, along with interest rates already being lowered by central banks overseas and the improved cost and availability of global capital, international investment is likely to flow into Australia more freely this financial year.
“All signs point to the debt and investment markets changing from a period of volatility to stability, and even growth, in a few of our core investment markets,” said Mr Coverdale. “This gives us some confidence that foreign investment will improve throughout FY25, most likely with a focus on retail, office and industrial asset classes, as the global economy steadily recovers from the less favourable conditions of previous years.”
The prime office market in Australia is already seeing some of the benefits of these changed global conditions. Foreign investors like German-based Deka, Singapore-based Keppel and SingLand, and Hong Kong-based PAG, have all purchased assets in Sydney and Melbourne this financial year.
In terms of investment acquisition volume throughout FY24, the United States held onto its number one spot in FY24 ($3.3 billion), followed by Japan ($2.43 billion), Singapore ($2.12 billion), China including Hong Kong ($1.6 billion) and Canada ($580 million). US investment and equity firms demonstrated a strong appetite for a wide range of property sectors in Australia, while investors from Singapore and China preferred more traditional and core asset types such as retail, industrial and office. Notably, Singaporean investors have also divested a large number of holdings from their portfolio.
“Japanese investors are typically attracted to counter-cyclical opportunities, and they became active in the Australian market once again in FY24 after a few years of inactivity, especially in the office sector, with $2.33 billion in net investments. Importantly, some of our strongest and longest-term investors like those from the US, Singapore and Hong Kong are still actively seeking opportunities in this market,” said Mr Coverdale.
However, not all asset types experienced the same type of foreign investment growth in FY24, with substantial variations by market. The office sector experienced the most positive investment across the board, mainly due to high capital values and improving occupancy demand, with $4.1 billion invested in office assets during FY 2024 across 18 sales to investors from Japan, Singapore, Hong Kong, Malaysia and the USA.
Industrial assets also proved popular with the second highest volume of transactions in FY24 and an acquisition volume nearly 50% higher than disposal volume. Investors from the USA, Canada, Hong Kong, Singapore and the Netherlands were the most active purchasers of this asset class.
Development sites were also an attractive asset class for cross-border investors in FY24, with $1.3 billion invested across 26 sales. Demand for retail assets tracked much lower than other commercial assets like office and industrial, consistent with residential and alternative housing assets, while alternative assets like non-core and hotel assets experienced substantially lower market activity. Non-core assets were also the only class with negative net investment from cross-border investors, reinforcing the international trends and demand for core asset types.
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