Property offers safe returns to global investors

PUBLISHED : Monday, 26 January, 2004, 12:00am
UPDATED : Monday, 26 January, 2004, 12:00am

A recent slowdown is returning the Australian housing market to more normal trading conditions, making it a favourite among investors looking for safe returns.

A fall in new building approvals may herald the end of a three-year housing boom but experienced investors and owner occupiers remain active.

Australia provides investors with a stable political and economic environment, says Charles Griffin, general manager for marketing and sales at Central Equity.

'Although huge windfall gains are unusual, it is a popular destination for investors wishing to diversify safely geographically,' he says.

Australia's growing world-class education system is also underpinning residential demand in the investor sector, especially in cities such as Melbourne, Mr Griffin says.

In Victoria, the housing market continues to be underpinned by growing numbers of single owner occupiers and smaller families, increased employment and migration and low interest rates, he says. Home-ownership levels in the state's capital, Melbourne, remain high, with investors making up a small percentage.

Bucking an expected trend towards moderation this year, Mr Griffin says property prices in Melbourne are expected to rise by up to 8 per cent over the next 12 months.

Amid emerging evidence of a cooling in the Australian residential market, some investors are expected to turn to commercial property in search of bigger returns.

The commercial property market is dominated by institutional investors and yields remain strong.

The national central business district office vacancy rate is stabilising on recent signs of returning strength in the economy.

Property consultancy Jones Lang LaSalle says a number of signs suggest the Sydney CBD office market is about to turn the corner.

National director John Dillon says these include indications of stronger global economic growth, mainly on the back of improved economic performance in the United States.

He says this is generally a good sign for the office market, given the traditionally strong co-movement between the Australian and US business cycles and the number of global corporate tenants in the Sydney CBD.

Sustained corporate profitability, improving business confidence and capital investment expenditure in the financial and business services sectors are expected to further support office demand. The immediate benefits to owners will include more favourable lease terms and higher effective rents.

Jones Lang LaSalle forecasts average rental growth in the Sydney CBD of 4.3 per cent a year between this year and 2007, with vacancy levels hovering between 9.3 and 11 per cent.

The firm predicts annual net absorption will average 76,000 square metres through to 2007. Grade-A office space is likely to be the out-performer in the Sydney market over the medium term.

Analysts say quality assets will continue to draw investor interest, given the outlook for interest rates and an investment community awash with funds.

Andrew Pang, executive director, international investment at Knight Frank, says demand for suburban office assets in Sydney has strengthened over the past year, with yields of up to 11 per cent.