Dual-faced Australian Property Market Faces Turbulence and Growth

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Australia’s property market is facing a dual scenario with commercial property values under pressure and foreign investment, particularly from China, in residential property showing a steady increase, according to recent reports.

In a piece published by Chanticleer in The Australian Financial Review, the global office property crisis, which had already been in effect for months, has finally hit Australia. The Charter Hall’s unlisted Direct PFA fund, which manages a $2.45 billion portfolio of office properties, is reportedly limiting redemptions due to “challenging economic and property market conditions”.

“Acting in the best interest of all investors, we will continue to apply financial discipline to deliver stability and long-term returns as well as liquidity,” stated the fund. Yet, the limit on redemptions indicates an evident spook among investors over the downturn in commercial and office property values.

While Charter Hall argues that Australia’s commercial property sector could withstand the storm better than international markets, this argument has seemingly not resonated with investors. This is evident from the rush of redemptions in the Direct PFA fund, despite the fund’s performance of delivering a 9.7 per cent return since inception.

In contrast, on the residential property front, Chinese investment in Australian homes continues to rise. As reported by Alesha Capone in Herald Sun, China-based buyers have spent a whopping $2.3bn on 1775 Aussie homes between July 2022 and March 2023, according to data from the federal Treasury’s Foreign Investment quarterly report.

Chinese interest in Australian homes in 2023’s first quarter was reportedly 127% higher than the previous quarter, as stated by Daniel Ho, Co-founder and Group Managing Director of Juwai IQI. “We expect Chinese investment in Australian real estate to climb at least 30 per cent in 2023 compared to 2022,” Mr Ho added.

Moreover, PropTrack data shows that searches for Victorian property by Chinese-based potential buyers increased by 42.88% in the last financial year. “China’s zero Covid policy ending in January helped the bounce-back” in demand for Australian property, said PropTrack economist Anne Flaherty.

While the dual-scenario in Australia’s property market raises interesting dynamics, it’s clear that uncertainty over commercial property valuations will continue to loom, alongside a strong demand for residential property from overseas investors.

Nevertheless, as Chanticleer points out, “this certainly isn’t the time for the fund to take on more debt to meet redemptions.” Only time will tell how the Australian property market adapts to these shifts.

Footnotes

Chanticleer. (2023, July 16). The global office property crisis has finally hit Australia. The Australian Financial Review. Retrieved from https://www.afr.com/chanticleer/the-global-office-property-crisis-has-finally-hit-australia-20230716-p5domm 

Capone, A. (2023, July 16). Offshore demand: PropTrack, experts point to rising Chinese investment in Aussie homes. Herald Sun. Retrieved from https://www.realestate.com.au/news/offshore-demand-proptrack-experts-point-to-rising-chinese-investment-in-aussie-homes/