‘Wall of money’ flowing back

wall of moneyOVERSEAS money is increasingly driving the recovery of the Australian commercial property market, with net foreign investment last year at its highest level since 1994, according to research from Jones Lang LaSalle.

Combined with the steady growth of superannuation money and the repatriation of funds from the sale of offshore assets by Australian investors, a big pool of capital is looking for real estate investments in Australia.

JLL’s report, Values, Vacancies and Transaction Volumes – A Checklist of Real Estate Trends for 2011, said the Australian property market would be driven over the next two years by five short-term trends.

These were offshore investment, increasing sales, accelerating rental growth, tightening yields and rising capital values, and a continued thawing of capital markets.

The report’s author, David Rees, JLL’s head of research and consulting in Australasia, said offshore investors accounted for 19.9 per cent of commercial transactions (office, industrial and retail) last year – the highest proportion since 1994.

”In the hotel sector, Asian buyers accounted for 58.3 per cent of transactions, a proportion exceeded only once before, in 2002,” he said.

Dr Rees said the latest annual survey by the Association of Foreign Investors in Real Estate ranked Australia fifth – behind the US, China, Britain and Brazil – as the country offering the best chance of capital appreciation this year. As well, the 2010 JLL transparency index survey ranked Australia No. 1 globally.

Key factors were Australia’s stable economic growth, transparent capital markets, close links with product markets in Asia and financial markets in the US and Europe.

Recent changes in the regulations governing tax structures for managed investment trusts had further increased Australia’s appeal.

Dr Rees’s conclusions dovetailed with those of CB Richard Ellis executive director Kevin Stanley. Mr Stanley said in CBRE’s outlook that a potential $22 billion pool of capital was available globally, much of it from Asian pension funds.

”Regulations in Asia are changing to allow for these pension funds to pursue global investments,” he said. Asian investment in real estate had usually been quite low, but this was changing.

”If bumped up to a global standard of 10 per cent, this would release an estimated $20 billion for real estate investments on a global basis – or $2 billion for Australia if 10 per cent of that pie was allocated to the Pacific,” he said.

Dr Rees said superannuation assets in Australia had grown by 62 per cent between 2005 and 2010. Despite the global downturn, the volume of funds available for investment had been rising and ”will be a big potential driver for demand in the Australian commercial property market in 2011-2012”.

“New sources of debt are emerging, debt markets are continuing to thaw, Australian REITs (real estate investment trusts) have recapitalised and are reweighting portfolios back to the domestic market and there is the long-term growth potential of super funds,” he said.

Mr Stanley said super funds still had 13 per cent of their capital sitting in cash – twice the long-term allocation. ”If this was reduced to 6 per cent, that would create a $100 billion investment pool, some $10 billion of which could potentially be allocated to real estate,” he said.

Other sources of real estate capital includes wholesale funds, with potentially $1 billion to invest; a $1.5 billion buy-up of real estate by A-REITS was not out of the question; and a likely $1 billion outlay by private investors.

Dr Rees said the ”wall of money” evident in Australia from 2000 to 2007 was now re-emerging. ”After going offshore, the money has now been repatriated back to Australia and ”we are now looking at a rerun of the 1990s where too much money was chasing too few assets”, he said.

In 2006, Australian investors invested aggressively offshore, with a net balance of $13 billion in offshore asset bought compared to their sales in offshore markets. This net balance dropped to $3 billion in 2007 but nevertheless Australians continued to be net buyers offshore. ”In contrast, offshore investors returned to the Australian market in 2007 as net buyers, with a net balance of positive $2 billion between their purchases and sales in the domestic market,” he said.

“Since 2008, Australians have been divesting offshore and repatriating capital while foreign investors have continued to be net buyers in the Australian market. The net balance of Australians selling assets offshore and foreign investors bringing capital in was $2 billion in 2008, $3.4 billion in 2009 and $4.2 billion in 2010.”

Dr Rees said the mismatch between the flow of funds and available assets was likely to persist. Implications could include asset price inflation or a bubble effect, increased development activity, growing interest in alternative forms of real estate exposure and an early return to offshore investment by A-REITs.

“This mismatch between capital and assets could kick start development as investors look to build assets if they can’t find suitable assets to buy,” he said.

Story by Philip Hopkins www.smh.com.au

Tags: finance, investment, news, property, real estate

Make money while waiting

offtheplanWith many off-the-plan developments taking years to complete, buyers might want to reconsider how much deposit they put down on a flat they won’t occupy for a long time.

Under the Sale of Land Act, a deposit cannot exceed 10 per cent of the purchase price of an OTP unit but that doesn’t mean the deposit must be the full 10 per cent.

The tight funding requirements banks impose on developers as a result of the global financial crisis mean it is taking longer for an OTP project to get from the sales stage to the start of construction.

Many buyers must now wait three — even four — years to take possession of a unit, depending on the term set in the contract of sale.

On a $500,000 apartment, that typically involves handing over $50,000 as a deposit on a deal that can take years to conclude.

Buyers should check whether a developer will accept a smaller deposit; if they will, the buyer can then invest the remainder more profitably in the meantime.

Developers may, however, insist on taking the full deposit as it might be a precondition for getting their own financing for the project.

Buyers should also seek approval from their bank before taking this step.

Story source: http://www.domain.com.au/

Posted in News, Research

To Make Money Real Estate Investment Is About Finding Good Deals

House HuntingBy real estate investment we mean investing money into property i.e. buying property at a low price and selling it at a higher price so as to make a profit out of it. So the most important part of good real estate investment is to get hold of such properties which can give you good returns.

Now, how can you get these potential profit-making deals?

Your first avenue for finding good deals is the local newspaper (the property newspaper). Just search for properties that are listed directly by the owners who want to avoid paying commission to the real estate brokers. Since the owner is saving on the commission that they would otherwise have to pay to the broker, they would probably be able to offer a lower price to you and be more open to negotiations. You could also place your own ‘wanted’ ad in the local newspapers.

On the same lines, you could use internet to search for the real estate investment avenues. In fact, you would be astonished by the number of real estate investment opportunities you are able to locate on the internet. Not only that, searching for real estate investment opportunities (i.e. property for sale) is much easier on internet than anywhere else.

Another good way to hunt for real estate investment opportunities in Australia is by using the services of real estate brokers. Some people use real estate agents as their first (and maybe the only) touch point for getting real estate investment opportunities.

The real estate agents act as information hub for people looking to buy property. In fact, a lot of sellers find it much more convenient to sell their properties by listing it with real estate agents.

Multiple listings service is another good way to find real estate investment opportunities. Since the multiple listing book is provided only to the real estate agents and not to the general public (unless you are very lucky), all the cream (good real estate investment opportunities) would have already been taken before you get to see the book. The key here is to look for expired listings that didn’t get converted to a deal.

Another good way to get a property, that is a good real estate investment, is to look for foreclosures by banks/ VA/ FHA or to visit public auctions. You can generally get a good deal here. Divorce settlements are another good real estate investment opportunity.

Real estate investing is one of the most attractive ways of making good money (that is if you do it correct). Moreover, real estate investing is also a lot of fun. A lot of people practice real estate investing as their core profession and, in fact, make a lot of money that way.

Real estate investing is really an art and, like any art, it takes time to master the art of real estate investing. The key, of course, is to buy at a lower price and sell at higher price and make a profit even after paying all the costs involved in the two (buy/sell) transactions.

So, real estate investment is really about finding good deals. And finding good deals does take some effort.

Story source: http://financeam.com

Tags: buying, house, investment, marketing, news, property, research, selling

Reserve Bank holds the interest rate reins

Rate RiseCUP Day punters could have an extra reason to cheer today, with the odds strongly in favour of the Reserve Bank keeping interest rates on hold for a sixth consecutive month.

But any sigh of relief from borrowers could be short-lived, with some pundits predicting that the RBA will still send rates north by Christmas. And analysts are divided over whether Australia’s big banks will be forced to raise rates independently if the RBA chooses to keep its powder dry today.

Nomura’s Victor German said it was clear banks wanted to raise rates, but, from a political point of view, it would now be "very difficult".

He named Commonwealth as the bank most likely to go it alone, but said the chance of an independent rise was "diminishing" with the new Senate inquiry into banking competition.

Southern Cross Equities analyst TS Lim agreed that political pressure made it tougher for banks to raise rates but said increasing funding pressures meant banks were likely to act anyway.

"Once CBA does it the rest will follow," he said.

Futures market betting on the likelihood of an official rise has plummeted in the past week after benign inflation data dampened expectations that the RBA would lift the cash rate to 4.75 per cent.

Market odds last night reflected just 26 per cent chance of a rate hike today, despite new data revealing an uptick in price pressure in October.

Commonwealth Bank chief economist Michael Blythe said a rates pause today would be "probably only a temporary reprieve".

He said economic data in the next month – including critical growth, job and capital spending indicators – could convince the RBA to hike in December.

The TD Securities-Melbourne Institute monthly inflation gauge showed that on an underlying or "trimmed mean" basis – a measure used by the RBA – inflation rose by 0.2 per cent after flat results in August and September.

On a yearly basis, inflation grew at 3.1 per cent – outside the RBA’s target range of 2 to 3 per cent.

Pushing the gauge higher were price rises for car fuel, fruit and vegetables, and insurance services.

Story by Rachel Hewitt – with Peter Taylor www.heraldsun.com.au

REITs in for a bumpy ride

REIT Investors in the real estate investment trust (REIT) sector are preparing for a bumpy last quarter of calendar 2010 caused by rising interest rates and the next round of office and retail property valuations.

Property trust analysts have predicted another round of consolidation among the trusts is not far away as predators look to take advantage of the continued low share prices for many of the listed trusts.

Deutsche Bank’s Matthew Bertram has earmarked Mirvac’s residential business as a prime target for any consolidation within the REIT sector.

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”In our view, Mirvac’s residential brand would be saleable, if REITs were to enter a consolidation phase,” he said.

”If Mirvac’s return on capital remains below its weighted average cost of capital in the medium term, on our estimates a sale of the residential division would be accretive to funds from operations, reduce debt and potentially facilitate a return of capital to shareholders.”

Other deals being worked on are the sale or internalisation of the management rights of the ING Group’s listed trusts, while Stockland is closer to securing the retirement group Aevum.

Investors are debating whether Stockland will launch a bid for FKP’s retirement assets.

Reflecting the fluctuating sentiment among REIT investors was the S&P/ASX 300 A-REIT Accumulation Index, which underperformed the broader equity market by 5.5 per cent, returning a negative 0.9 per cent for September. That compared with August, when the same index outperformed the broader market by 3.5 per cent, returning 3.5 per cent over the month.

The managing director of Maxim Asset Management, Winston Sammut, said over the past year to 18 months, Australian REITs had been concentrating on improving their balance sheets as well as refinancing their debt facilities.

Where possible, a number have been actively disposing of ”non-core assets”. As a result, most of the A-REITs have moved back to basics, becoming the traditional defensive asset class it should always have been.

Mr Sammut said that as a consequence of these changes, the longer-term outlook for A-REITs was positive.

”Over the short term, we expect the sector to trade around current levels before moving ahead as investors become more comfortable with the reformation of the A-REITs that has taken place over the last year or so,” Mr Sammut said.

He added the recently launched Maxim Income Fund benefited from the volatile financial markets, generating a return of 3.29 per cent from July 15 (the date of the last distribution) to September 30th.

Story by Carolyn Cummins COMMERCIAL PROPERTY EDITOR www.smh.com.au

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