Australian Housing Crisis Creates Opportunity for Institutional Investors: MTD TV

Australian housing prices have fallen by nearly a tenth in the past 12 months, but rising construction costs and scarce credit mean that the country’s housing shortage continues, with panelists in an industry forum on Thursday seeing opportunities for experienced institutional investors to profit from build to rent and condominium projects.

Speaking at the fourth session of the Mingtiandi APAC Residential Forum, which was sponsored by Yardi, senior executives from Nuveen Real Estate, Phoenix Property Investors, GreenFort Capital and Scape agreed that, while the market has become more challenging, events of the past year have also helped open doors for global and regional investors in Australia’s prime residential markets.

“It’s not controversial to say this anymore, that we’re genuinely in a housing crisis. The sale prices are falling, pre-sales for new developments are falling so it’s harder for traditional build-to-sell developers to get new projects up which is again, causing the supply-demand equation to tighten,” said Ben Taylor, Nuveen’s director of housing for Asia Pacific. “The opportunity is there now for institutional capital to fix this crisis.”

Trent Winduss, partner and head of Australia investments and Asia structured debt investments at Phoenix, backed Taylor’s sentiment, noting that the ongoing volatility in the housing market is a “good time to acquire high quality assets on the right terms.”

Affordability Challenges Continue

Average house prices in Australia have now fallen 9 percent since reaching a peak in April 2022, but despite the correction, the country’s large cities continue to have some of the priciest homes globally. Sydney’s housing market was named the second least affordable in the world after Hong Kong, with Melbourne, Adelaide and Brisbane ranking ninth, 14th and 15th, respectively, in the Demographia International Housing Affordability report published this week.

High housing prices have caused a shift in views of home ownership, according to Stephen Gaitanos, co-founder and group CEO of local student housing specialist Scape.

“There is a huge affordability crisis here at the moment and unfortunately, or fortunately, everyone wants to live within 5 to 10 kilometers of our major CBDs,” Gaitanos said during the panel. “Buying your own house maybe was a dream that your parents had, but it’s becoming near impossible. For us, it’s just a natural evolution.”

Vacancy in rental apartments across the country hit a record low of 0.8 percent last month while Melbourne, Sydney and Brisbane all had less than 1 percent availability, according to industry data. The double whammy of high interest rates and rising construction costs is also putting more pressure on the market as developers struggle to complete projects.

Global Appeal

The shortage of housing supply and long-term shift toward a permanent cohort of renters is helping to boost the appeal of Australia’s build-to-rent sector with global investors, according to Adam Vaggelas, founding partner of GreenFort Capital.

With GreenFort currently developing what is planned as a 1,500 unit rental housing portfolio with Switzerland’s Partners Group and American giant BentallGreenOak, Vaggelas expects more domestic and foreign capital to flow into the sector due to the attractive yields available, especially given rising uncertainty in commercial property markets.

“The Australian housing sector has performed extremely well during the pandemic and is a very defensive asset class. The ability to hedge against inflation by resetting leases on a regular basis is very attractive in the current environment ” he said.

“When we look at housing on a cash on cash basis, with vacancy rates sitting at 1 percent and no lease up incentives required, and compare that to commercial property, net housing yields look comparatively very attractive,” he added.

More Supply Needed

While the country’s housing market continues to struggle with rising interest rates and limited availability of credit, Phoenix’s Winduss remains encouraged by macro drivers for the sector, especially after the reopening of borders helped to boost migration.

“I think the first half of 2022 was the strongest population growth in Australia for 10 years or since 2009 and most of that was driven by migration coming back,” Winduss said.

“We are bullish on the fundamentals so for us, it’s a focus right now on acquiring the right assets,” he said, noting the importance of having on-the-ground teams in vetting potential acquisitions.

For Nuveen and Scape, Australia’s ongoing population growth and chronic housing shortage in the major cities provide a path forward for informed rental accommodation investments.

“The one way to release the pressure on rental growth is obviously to create more supply, but it needs to be targeted. That’s where the role for institutional capital, but also partnerships with various levels of government, need to come in to help stimulate that new supply,” Nuveen’s Taylor said, noting that Nuveen’s target segments in Australia’s living sector currently include student housing, build-to-rent multi-family and affordable housing.

Gaitanos said Scape is set to do its part in reducing the housing shortage with 10,000 rental units already underway to add to their 17,000 existing rooms, which keeps them on track of their goal to reach 50,000 apartments across Australia’s capital cities by 2028.

Logistics Up Next

With Thursday’s session having concluded the APAC Residential Forum, MTD TV will be back in May with Mingtiandi’s fourth annual Asia Logistics Forum.

The upcoming event series will include panel sessions on warehouse investment across the region, including Greater China, Japan, Korea, India and Southeast Asia. Previous sessions have featured interviews with industry leaders from GLP, Hines, LaSalle Investment Management, APG Asset Management, CPPIB and more.

In June, Mingtiandi will head to Hong Kong for its first on-location event in the city since 2019. Set for 27 June at the Sheraton Hong Kong Hotel and Towers, the full-day event will include speakers from Link REIT, APG, JLL, Heitman and MSCI.