Asian investors set sights on Australian apartment market

Australia’s natural resources are not the only asset in demand from Asian markets right now, as an increasing number of foreign investors set their sights on residential apartment development in our major cities.

According to CBRE  property group, around a third of all new apartment developments currently in the pipework for Sydney and Melbourne are owned and developed by overseas investors.

This translates to approximately 13,000 apartments in 37 projects.

A report in the International Business Times claims Singaporean developers are dominating this latest Asian investment influx, which is reminiscent of the Japanese office and hotel development boom that occurred here in the late 1980’s.

CBRE executive director Kevin Stanley, says Singapore based Frasers Property is responsible for the most substantial offshore investment, as backer of a new residential project on Sydney’s old Chippendale CUB site that will consist of 2,900 apartments.

Coming in a close second is Hong Kong’s Far East Consortium, which is constructing a 2,600 apartment complex onMelbourne’sLonsdale Street.

“Other investors in apartment developments are Malaysians, Chinese, Koreans and Indians,” says Stanley. He adds that Chinese investors are relative newcomers; whose presence was felt only in 2011 after Beijing encouraged them to go offshore to cool off China’s residential property market.

More money being sunk into Melbourne

Interestingly, even though Sydney is generally perceived as Australia’s biggest city by our Asian neighbours, the majority of foreign investment is being sunk into Melbourne’s apartment market due to a greater availability of larger, developable sites on the city’s northern boundary.

Local developers will no doubt feel the pinch as they battle tighter banking and finance restrictions than their Asian counterparts, who have the ability to source funds from overseas financiers and sell an unlimited number of apartments due to revised foreign investment rules.

Australian consortiums face much tougher lending restrictions, including the requirement to sell 100 per cent of their proposed projects before funding is even considered.

Why all the interest in apartment development?

So why this amount of overseas interest inAustralia’s apartment market right now?

According to Stanley, the relatively lower construction cost and our stable economy gives foreign developers the perfect opportunity to move equity offshore and diversify their risk.

My thoughts:

For investors, this is yet another fly in the ointment when it comes to buying “off the plan” from developers who are looking to cash in on large, generic residential towers smack bang in our major cities.

Anyone who reads my blogs will know that I am an adamant detractor of “off the plan’ purchases.

And if I needed any more ammunition for my argument as to why they should be avoided at all costs (not that I do), the oversupply we are about to experience as a result of this hyped up foreign investment should do the trick!