Keep an eye on foreign private property funding: Qualitas MD Andrew Schwartz

15 November 2017

November 14, 2017. Financial Review by Su-Lin Tan

The flood of foreign capital rushing into Australia to privately fund residential projects is welcome but must be watched, said Andrew Schwartz, the managing director of real estate investment management firm Qualitas.

The amount of private “alternative” funding was staggering, Mr Schwartz said at the 2017 UBS Australasia Conference on Tuesday.

While the private banking sector was robust, foreign private capital was more “transient” than local monies, and more seduced by relative yields between Australia and the rest of the world.

“The relative yields between Europe and US are driving capital into the residential market and financing the projects … Something to keep an eye on is credit risks that are changing and the ultimate withdrawal of capital out of Australia,” he said.

“You just want to make sure that this is not occurring at the cyclical downturn of the market.”

These private monies usually come in the form of high-net-worth funding, smaller foreign banks and sometimes family offices.

In September, Reserve Bank of Australia research suggested unregulated loans to developers could total $28 billion, but that this was still a small proportion of total residential lending.

Qualitas itself has taken advantage of the demand for alternative sources of construction finance, closing a $500 million development fund in May, with more to come.

Expert opinion

Property experts at the conference said projects were slowing, and, while there were concerns of oversupply and possible price falls in cities such as Brisbane, no market had yet reached a critical point.

“Brisbane is softening, but this is compared to Melbourne, and Sydney. There are also different markets within Brisbane and from a foreign perspective it has the least exposure to foreign investment market,” Lendlease head of apartments Ben Christie said.

Ausin Group chief executive Joseph Zaja agreed, saying Brisbane, unlike Melbourne and Sydney, was not a good proxy for how the major apartment markets were faring.

In Melbourne and Sydney, population growth was still absorbing new supply, with no major discounts in apartment prices.

Even developers in Perth, which has had a major downturn and has not seen any price growth in the past 10 years, were moving stock well, Mr Schwartz said.

“That market came to a grinding halt. I think that is an example of a market that is feeling some form of stress. Even in that market you don’t see developers selling stock at big discounts,” he said.

Mr Christie also said there would be “great opportunities” in the Perth apartment market in the next 12 months.

This follows Stockland’s decision to buy 4600 lots for a long-term play into the housing market in Perth and developers such as Far East Consortium looking to build new apartment towers in the Perth CBD.

The overarching similarity between the markets, however, was the retreat of investors, CBRE residential projects chairman Justin Brown said.

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