18 Mar 2014
Australian investors are targeting offshore real estate markets and, while the EU and the US remain safe bets, interest is likely to start building in Asian markets in the medium to long term amongst Australian Super funds. But local knowledge and timing is key, says Stephen Conry, Australian chief executive officer, JLL.
The Asia-Australia relationship has predominantly been a one-sided exchange, with China and India feeding their resource-hungry economies on Australia’s bountiful mineral supply. But as the mining boom comes to an end Australian investors are looking elsewhere for growth – and Asia’s growing economies are an exciting proposition.
“Emerging markets are likely to show the strongest growth in new commercial real estate stock over the next decade, consistent with growth in their underlying economies.”
After the hard hit of the Global Financial Crisis, Australians have been cautious about investing outside of the transparent markets of North America and Europe. But as Asia’s growth story continues the Australian government is encouraging investors to seek out opportunities in the region. And with the national pension pot swelling – contributions are set to gradually increase to 12 percent of salaries by 2020 – there’s significant capital in the pipeline to explore international real estate markets.
But, despite the potential, it’s a long game and investors must exercise plenty of caution, according to Conry.
Asia - with 19 economies, each with different currencies, business structures and legal systems ¬¬– can be a difficult and challenging place to do business and Australia’s current domestic bias is born out of transparency concerns: “They feel more comfortable investing in their own environment,” he says. “You see a lot of Australians investing around the world - North America and Europe - where it’s more transparent than Asia.”
In an effort to abate these concerns and embark on Asian investments, Conry expects partnerships to be the big market-entry trend: “We’re seeing Asians, Canadians and Europeans investing in partnership with local players, because the locals have the on the ground experience, and the know-how. We’ll see more Australians doing that in Asia, and around the world.”
Ultimately, any Australian plan to invest in Asia is good news for ASEAN.
While Australia’s economy has remained relatively robust in recent years, ¬and Asian investors have been enticed ‘down under’, Australia has plenty of capital to invest offshore: “Office markets are most mature and attract the most investment,” says Conry.
“Industrial markets are emerging around China and Japan and there is increased opportunity there for industrial leasing and investment. And retail is very strong, too.”
China remains an important market for Australia but, once again, it’s a cautionary tale, and Conry stresses that the markets must be sound before Australian investors can enter: “There’s no silver bullet, it depends what’s on offer. Good opportunities lie in China and seriously mature markets of Hong Kong and Singapore but there’s competition from investors from around the world. A lot of research needs to be done.”
These early indications of a more fruitful economic integration between Australia and Asia are even timelier with the upcoming World Economic Forum in the Philippines in May. No doubt the looming 2015 deadline for Australia’s ASEAN partnership agreement weighed on Australia’s Minister for Foreign Affairs’ mind during a recent visit to ASEAN nations. With the aim of strengthening trade and investment ties, Julie Bishop was tasked with convincing the region that Australia means business.
“Asian countries want to see if Australia is serious. It’s going to be a very exciting decade ahead,” added Conry.