The forum featured four expert panellists: Antony Green, Head of Real Estate and Government Business, ANZ at Macquarie Capital; Amanda Steele, Executive Managing Director, NSW and Senior Managing Director, Property Management, Pacific at CBRE; Andrew Schwartz, Group Managing Director at Qualitas Group; and Nerida Conisbee, Chief Economist at REA Group.
Opening remarks from Nathan Briner, head of the ABL Banking & Finance practice in Sydney, highlighted major trends, including:
- tighter lending by the traditional banks
- an ever-increasing flow of money and new participants in the non-bank lender market
- increased regulation following the Hayne Royal Commission
- falling residential property prices in Sydney and Melbourne
- fewer active foreign buyers, and
- election uncertainty with potential tax changes.
A summary of the lively discussion facilitated by Paul Rubenstein, ABL’s Managing Partner in Sydney follows.
With the pending elections (both State and Federal), how might a change in government affect the property sector?
- Residential markets are confidence plays. Usually, the market softens leading up to an election. “Markets don’t like uncertainty and they don’t like change”.
- Changes to negative gearing will be a significant change to the residential property market.
- Labor governments traditionally use more space in Australia’s capital. It’s a great time to be buying property in Canberra.
Commercial property has been buoyant over the last twelve months. What does the future hold for office and commercial property?
- We’ve seen a reversal of the traditional approach, with office property being an investment for stability and income growth, while the traditional darling child of retail is suffering.
- Compression in yields has not reached the levels of other global cities like Tokyo, so global funds still see office and commercial property in Australia as a good investment.
- Global investors are much less interested in retail assets, now second only to car parks.
Is the build to rent sector on the rise? What are the impediments? Will distressed housing stock assist the build to rent sector?
- Taxation change is necessary to encourage sustainable build to rent in Australia.
- There are different models of how build to rent will assist affordability.
- Debt markets in Australia don’t yet have models to support build to rent. There are different debt structures particularly suited to build to rent available overseas, which lenders aren’t willing to provide in Australia.
With tighter lending requirements, we have seen a recent retreat from the big 4 banks. Is this an opportunity for the non-bank lenders?
- The credit cycle and the property cycle are very different.
- Non-banks are growing in terms of total credit market. Two or three years ago developers’ primary relationship was with their trading bank. Today, developers require deeper relationships with non-banks and the flexibility they offer.
- Pre-sales are eroding and non-bank lenders are looking at lower levels of starting debt, which increase as the pre-sale contracts increase.
How has the banking royal commission affected property financing?
- The royal commission said a lot about residential mortgage brokers and less about residential finance.
- Banks quickly restricted finance and made sensible changes to their information gathering for potential borrowers.
- Regulation actually pulled back at the end of the royal commission as government concerns about investor spending had already been addressed.
Pension funds in Australia are looking overseas and overseas pension funds are looking at Australia to invest in. Should pension funds in Australia be financing property in Australia?
- People will spend what money they have on housing. If they use their superannuation to invest in residential property, they are too exposed in only one sector.
- Australian trading bank lenders as a proportion of the residential finance sector is much higher than overseas. Offshore pension funds like investing in Australian assets given the returns they can achieve compared to other markets. However, residential debt is treated as an alternative asset and illiquid, both of which Australian super funds traditionally don’t allocate much funding to.
- Most Australians are already directly exposed to Australian property, so super funds are hesitant to invest in property lending.
Looking at the year 2029, where will smart money invest?
- Andrew Schwartz: Real estate debt. In terms of assets, prices going down mean that storage facilities, retirement villages and student accommodation are becoming attractive again.
- Nerida Conisbee: Tech changes are going to drive the need for industrial facilities.
- Amanda Steele: Areas with lots of infrastructure and growth being put in place – e.g. a shed in Western Sydney or an office in Adelaide. Multi-family assets will also be a growth sector.