Property Australia

Staying competitive in capital markets

PROPERTY AUSTRALIA July 14, 2020

With $3 billion in cross-border transactions so far in 2020, harnessing global capital will be critical as we emerge from the coronavirus crisis, says the Property Council’s capital markets executive director Belinda Ngo.

 

  Three key takeaways:

  • Cross-border investment is down by just 14 per cent in 2020 – a sign that Australia’s market remains a safe haven
  • New foreign investment rules are adding complexity and time to transactions and leases
  • The Property Council is actively engaging with the Australian Government to remove investment handbrakes.

 

Analysis from Knight Frank has found Australia’s commercial transaction volumes fell by 44 per cent, totalling $7.8 billion, in the first half of the year.

But while purchasing activity from domestic sources fell by 61 per cent, activity from cross-border investors was down by just 14 per cent to a total of $3 billion.

Neil Brookes, Knight Frank’s head of capital markets for Asia Pacific, says deal activity has been “sporadic at best” as investors take a “a wait-and-see approach”.

As economic activity resumes in some markets in the region, investors are exploring options to deploy their capital.

“Even under challenging circumstances, there is ample capital seeking medium to long-term investment opportunities in the region, particularly in core, safe-haven markets,” Brookes adds.

With strong economic fundamentals and long-term performance, Australia remains attractive to offshore capital, Ngo says.Belinda Ngo 2019

“Australia was well-positioned entering the pandemic. We have fared better than other markets and we are well-positioned as we come out,” she says.

Ensuring Australia can harness global capital is critical to our economic recovery post-COVID and is a key pillar of the Property Council’s seven-point plan for economic recovery, Ngo explains.

“The Property Council has been actively advocating on behalf of members as foreign investment rules undergo a major overhaul.”

Following the coronavirus outbreak, the Australian Government temporarily reduced all monetary screening thresholds for foreign investment to $0 and extended approval times from 30 days to up to six months.

Previously, investors were only subject to Foreign Investment Review Board approval if they were acquiring non-sensitive assets valued at more than $275 million, or $1.2 billion if the investor was from a country with which Australia had a free trade agreement.

“With so much uncertainty around pricing, valuations and deals, our members are concerned that the extra layer around FIRB approvals may influence marginal investments,” Ngo says.

Lease agreements, where the tenure is more than five years, are also subject to the monetary screening threshold. Charter Hall's recent acquisition of ALDI’s $648 million logistics portfolio, which was purchased with a seven-year lease back, required FIRB approval for example.

“This is adding complexity and four to six extra weeks to leasing transactions at a time when there aren’t many leasing transactions,” Ngo explains.

The temporary measures are set to cease on 1 January 2021, “but we are advocating for this to be brought forward for non-sensitive real estate transactions and leases”.

In early June, Treasurer Josh Frydenberg announced a large-scale review of the foreign investment review framework which includes a more stringent national security review of sensitive acquisitions – which may include data centres – and streamlined investment in non-sensitive areas.

Draft legislation is expected to be released in the coming days before commencing on 1 January 2021.

Ngo says the reforms should provide greater clarity for the property industry.

“We are actively engaging with the government during the consultation process to ensure reforms aren’t a handbrake on investment. We’re advocating for streamlined settings that ensure our industry can welcome capital and leverage it to kick start the economy at a time when we need it most.

“When we emerge from the COVID-19 crisis everyone will be vying for the same capital. We need to ensure Australia is competitive.”