Perth Primed For New Wave Of Property Investment

22 September 2016

Attractive yields, safe haven status key drivers

Perth is primed for a new wave of property investment as investors seek to take advantage of attractive yields in the wake of the end of the mining investment boom, with off-shore investors, particularly Chinese, set to take a more prominent role, according to Savills State Director Retail Investments/Services, Chris Ireland.

Mr Ireland, a veteran of the WA real estate industry, has seen investors come and go but is convinced that investment fundamentals will soon drive renewed interest in WA’s commercial markets.

As Warren Buffett, perhaps the world’s best known investor, argues: “If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.” What he is saying is that stock investment is a long term game and the same goes for property.

“Sure some buyers manage to turn quick profits, and good luck to them, but they are the exception. Investors in it for the long haul take a longer term view. Chinese investors, for example, are known for seeking capital growth rather than short term returns or yields. It is also about buying in a downturn and selling in an upturn. Buy low, sell high as the adage goes.

“As demand for property in the east coast markets drives increasingly low yields, and correspondingly high prices, investors will turn to WA, and those who do so first are those who stand to profit most,” Mr Ireland said.

He said that sort of investment sentiment was a key driver of current demand for retail property in WA.

“Of course, retail, and especially neighbourhood centre retail, is regarded as a defensive investment, the sort of investment that continues to deliver in a downturn and that has been important in the upward sales trend we have seen over the last 12 months.

“But these investors also have an eye to the future in terms of considering location including local population growth and local and state government infrastructure initiatives, which will deliver long after the downturn ends,” Mr Ireland said.

According to Savills WA Manager Research & Consultancy, Katy Dean, Savills has recorded approximately $752.15 million worth of retail property transactions (>$1m) in the year to June in WA, up from $403.65 million in the previous year, and up on the five year average, of $690 million. She said 42 properties were sold, up from the previous year of 27, and up on the five year average of 26.

Ms Dean said sub-regional retail (typically 10,000 to 30,000sq m) accounted for $373 million in sales, and neighbourhood centre (up to 10,000sq m) sales totalled $178 million, while large format sales totalled $115 million.

Mr Ireland said he expected to see stronger demand from off-shore investors in the next investment wave especially from China.

“In relative terms, China remains the sleeping giant but make no mistake its impact on the global economy will be felt for decades as the most significant economic event of a generation.

“We haven’t seen anything like the extent of its force in WA but Chinese overseas direct investment is expected to overtake inbound foreign direct investment in 2016.

“In other words, there will be more investment dollars moving out of China than moving in. This has the ability to significantly impact investment markets worldwide as the Chinese appetite for investment products increases and WA is going to see its fair share of that market,” Mr Ireland said.

According to a Savills research report: Looking Glass China by Savills National Head of Research, Tony Crabb, China’s appetite for overseas assets has followed a three phase growth strategy including Phase one of overseas direct investment (1979 – 1990) which was focused on developing and modernising the economy and select state-owned enterprises were permitted to invest overseas.

Phase two (1991-2001) saw increased investment flows overseas while Phase three (2002 – present) has seen the introduction of a ‘going-out’ strategy resulting in a significant rise in overseas direct investment year-on-year.

Mr Ireland said one very important advantage that WA had was its reputation as an investment destination safe haven and one in which savvy players had done extremely well.

“The potential for Chinese investment in WA is enormous. There are currently around 150 insurance firms in China, with assets under management of approximately US$2 trillion. These organisations are interested in diversification, among other things, and it’s not drawing too long a bow to suggest that some of that investment is going to end up in WA.

“WA has a very good record of providing the sort of stable economic and political climate that inspires confidence in investors and developers.

“We have seen record investment in WA in the past and we are going to see it again and off-shore investors are going to play a key role in that,” Mr Ireland said.

 
 

Key Contacts

Chris Ireland

Chris Ireland

Director
Retail Services

Savills Perth

+61 (0) 8 9488 4179

 

Katy Dean

Katy Dean

Associate Director
Research & Consultancy

Savills Sydney

+61 (0) 2 8215 6011