Malaysians riding on Australia’s property boom

Izzat RatnaFriday, May 19, 2017
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Local funds and developers are heading Down Under to capitalise on the booming Australian commercial property market and cushion the earnings fallout from the depressed local property market. 

Cash-rich fund managers and developers, together with investors from China, are investing billions in Australia’s property development and snapping up projects in the last two years. 

Developers are also worried about their future earnings, while fund managers are cautious on rental yield prospects due to property overhang, demand drop and moderating rental yields for commercial properties in Malaysia. 

Colliers International Group Inc, in their “Metro Office Research & Forecast Report” for the first-half of 2017, said the effective rents in the key metro office markets of Sydney and Melbourne are “growing at an unprecedented rate”. 

The report also said fringe markets will continue to perform very strongly with tenant demand from the creative and technology industries. 

In areas like North Sydney, effective rental growth is expected to rise 8.7% year-on-year while areas like St Leonards would experience a 27.5% rise. 

“For some years now, the central business district (CBD) office markets of Sydney and Melbourne have been diverging from the rest of the country, creating an unprecedented story in both markets,” the report said. 

Colliers International said Sydney’s CBD fringe was the fastest growing market in Australia, with effective rents growing a whopping 30.7% over the year to March 2017. 

Melbourne’s City Fringe also grew by a very healthy 22.7% over the same period. 

According to Jones Lang LaSalle Inc’s “Australian Office Investment Review and Outlook April 2017” report, approximately RM45 billion worth of office transaction volumes were recorded in 2016 — the third highest year for transaction volumes. 

Moreover, local funds and developers are piling onto the opportunities. 

The Employees Provident Fund (EPF) recently acquired a 49% stake in Yarra Park City Pty Ltd (YPC), which owns the rights to a mixed-use development worth over RM9 billion in Melbourne for RM514 million. 

OSK Property Holdings Bhd, a subsidiary of PJ Development Bhd, owns the remaining 51% interest in YPC. The company is expected to hold the preview for its Melbourne project soon. 

The Melbourne Square development of a mixed-use community and retail centre would have a gross development value of RM9.4 billion. 

Local property developer UEM Sunrise Bhd is already reaping the reward for its Aurora Melbourne Central and Conservatory development in Melbourne. 

Property consulting firm Knight Frank Malaysia Sdn Bhd MD Sarkunan Subramaniam said these are strategic overseas ventures to get better returns. “Grade-A offices overseas, especially in Melbourne, provide better yields compared to similar offices in Malaysia.  (Pic: TMRpic)

Property consulting firm Knight Frank Malaysia Sdn Bhd MD Sarkunan Subramaniam said these are strategic overseas ventures to get better returns.

“Grade-A offices overseas, especially in Melbourne, provide better yields compared to similar offices in Malaysia.

“It just makes sense for local companies to leverage on these gains while the properties there command a high asset value,” he told The Malaysian Reserve

Besides new investment, local funds are also reaping the gains from disposal of their assets in Australia. 

Retirement Fund Inc — Malaysia’s second-largest pension fund — sold a key asset in Sydney’s CBD for around RM1 billion, setting a new record for A-grade office buildings in Australia. 

The EPF was also reported to have sold the office complex at 50 Marcus Clarke Street in Canberra, Australia, for A$321 million (RM1.03 billion), in which it had an 80% stake to South Korea’s Mirae Asset Financial Group. 

The building was bought by the retirement fund together with CIMB TrustCapital, for around A$226 million in 2012. 

Besides the capital appreciation gain, funds like EPF profited from the weaker ringgit and gain on currency exchange rates. 

“Many companies are capitalising on the current asset appreciation value by selling off their remaining stocks while they can still command reasonable returns,” said Affin Hwang Investment Bank Bhd analyst Loong Chee Wei. 

The analyst said government-linked companies were also disposing of their overseas assets to support the government’s call to reduce capital outflow and encourage capital inflow to stabilise the local economy. 

 

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