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AsiaPac Investors Prefer to Invest in Melbourne

Melbourne overtakes Sydney as the top Australian location for offshore real estate investment dollars in Asia Pacific.

Melbourne seems to be collecting more notches on its bedpost. Not only has it been named the Most Liveable City seven consecutive times; it was also named Happiest City. A new survey has now pegged it as Australia’s Most Attractive City for global property players in the Asia Pac region.

A new survey has revealed Melbourne as the No. 1 Australian city for global property players in the Asia Pacific region.

Property sales and research firm CBRE launched their Investor Intentions Survey 2018, which polled a total of 366 respondents, including real estate funds, developers and companies.

Of those polled, 70% were based in Asia, 18% in Western Europe, the Middle East and North America, and 12% in the Pacific.

The survey found Melbourne overtaking Sydney as the preferred Australian location for offshore real estate investment dollars, as Sydney fell down the yearly rankings from first to sixth. Brisbane came in at eighth place — which was Melbourne’s position last year.

Melbourne’s rise as Australia’s “most attractive city” was “due to its stronger rental growth supported by tight vacancy”.

“Although asset pricing poses a major obstacle, investors remain keen to purchase real estate for risk diversification. Investors’ focus is on income growth as capital value appreciation will increasingly be driven by income growth,” the report stated.

CBRE expects a slowdown in Chinese outbound investment to continue following the introduction of new capital controls by the Chinese government last year.

“This year’s survey indicates that Chinese investors are less keen to invest overseas in 2018. While overall interest remains reasonably firm, fewer investors intend to invest more than they did in 2017.

This reduction of Chinese investment is being offset by investors from Singapore. Cushman & Wakefield reported that Singapore overtook China last year as the largest source of foreign capital for Australian commercial real estate.

Investments into Australia from Singapore quadrupled from about $1bn in 2010 to an excess of $4bn in 2017.

It is clear that Melbourne is driving housing market growth in Australia despite slightly weakened prices this year due to tighter regulation and an ongoing Banking Royal Commission investigation.

Yet experts say that the temporary slump will not make a major impact, and, in all likelihood, is just for the short term. Here’s why:

Melbourne faces a serious undersupply of housing, and this has been a strong driver for demand. The Urban Development Institute of Australia (UDIA) warned last year that the city could have a shortfall of 50,000 houses by 2020.

In their latest report in March this year, UDIA found that the state government will need to increase approvals and commencements of new housing by more than 10% in order to meet demand.

The Victorian government has committed more resources to speeding up the approval process of new suburbs, but the delivery of necessary infrastructure such as sewerage and roads remains a bottleneck.

UDIA Victoria CEO, Danni Addison, said that the supply of new housing being delivered right now was being driven by high population and employment growth.

“The numbers tell us that despite record high levels of building activity, we’ve still got a way to go before we can stop playing catch-up and ensure there’s enough new housing to meet the demands of population growth,” she said.

Data released by SQM Research in June 2018 showed that demand for property in Melbourne has stayed at a constant high. Vacancy rates remained incredibly tight at 1.4%, the same as 12 months before.

Rental rates in the city however, have sharply increased by a total of 3.5% since the the last 12 months, giving potential for high returns on investment, whilst capital growth has slowed.

What are your thoughts about investors flocking to Melbourne’s property market? Drop us a comment below. If you are interested in Melbourne’s potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!

By Ian Choong

Sources:

  • https://www.news.com.au/finance/real-estate/melbourne-vic/melbourne-no-1-with-offshore-investors/news-story/3cd0133d959eedcc50df55ca4dee19da
  • https://www.cbre.com/research-and-reports/Global-Investor-Intentions-Survey-2018
  • https://sbr.com.sg/commercial-property/in-focus/singapores-real-estate-investment-in-australia-ballooned-141-us35b
  • http://www.afr.com/real-estate/residential/victoria-at-risk-of-housing-undersupply-warns-udia-report-20180314-h0xg5e#ixzz59lZuQh53
  • http://www.sqmresearch.com.au/19%2006%202018_Vacancy%20Rates%20Steady%20in%20May_FINAL.pdf
  • https://csiprop.com/australia-faces-major-housing-undersupply/
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