Like a wake of vultures circling over a wounded wildebeest, foreign investors have spent the past year acquainting themselves with the Australian regulatory regime, and waiting for the right time to make a move in the property sector. According to leading property lawyers, that time is now.
Blake Dawson’s Sydney partner Les Koltai said he is seeing increasing interest among foreign groups looking to move into Australia, after being shut out of the property market for the past decade. This was due to the highly competitive nature of the market and the availability of domestic capital. “There is a window of opportunity for foreign investors to get set in Australia so we’re seeing quite a few foreign groups looking at the Australian market … to get involved here either directly through acquisitions or through investments into funds,” he said.
“They’ve used the past six months to a year to understand the legal and regulatory framework for investing in Australia, and just to run their eye over assets and opportunities as they arise.”
About to kick off
Koltai said he thinks foreign investment activity in Australian property is set to take off over the next 12 months, with plenty of work being generated both from existing and new clients. “My expectation is that investment activity will accelerate greatly over the next year,” he said.
“A lot of these groups have now done their homework, become acquainted with the taxation system and set up with their investment structures. The overwhelming view is that the next 12 months will provide the best window of opportunity for foreign investors to come in.”
Mallesons’ Sydney property partner Stuart Dixon-Smith said he expects much more work for real estate practices now that the investors have transitioned from positioning to transacting. “To the extent that we were doing any significant [business] before April or May, it was very much early-stage positioning that didn’t generate huge amounts of legal work,” he said. “But now that they’re actually transacting there is much more to do.” Dixon-Smith’s colleague, Sue Kench, said foreign investors have been “tyre-kicking” for the past year and are now entering into transactions, lured by high-quality assets that would not normally be available. “I can’t name them for confidentiality reasons but you’ve got some good assets that would never usually come onto the market and even some of the bigger Australian funds are looking at them,” she said. “We’re hopeful that this is the start of a reset for the property market.”
Dixon-Smith highlighted Goodman’s capital raising as a prime example of large investments flowing into the Australian property sector, helping companies pay down debt and prepare to make acquisitions. “I think the key thing is activity in the market is definitely being kicked off by foreign money and as that money’s begun to come in we certainly have seen movement,” he said.
Opportunity knocks
Freehills Melbourne partner David Sinn said he is working with a number of overseas clients - for example German investment fund Real IS, which is actively looking at Australian market acquisitions. He said the majority of work is on the developer side.
In order to take advantage of the current market, Sinn said, it would be beneficial to look more at the equity partners in these deals. “I think the best opportunity for our group is to diversify into equity investment and to follow where the flow of equity is coming from and to work with those people,” he said.
“The people who are buying these assets are the ones who some might say are taking a risk. I would say [they] are taking advantage of a great opportunity: buying property at reduced value.” He said that the buyers are likely to come out of the market with some significant capital gains that would entice them to invest further in Australian property.
However, he warned that foreign capital will not be able to sustain the domestic property market over the long term. “Quite frankly, the foreign money will at some point stop because when their own economies start to pick up again they’ll start looking locally to acquire assets,” he said.