The tsunami of Asian investment in Australian commercial property was widely reported in 2015 and continues to attract media attention this year. As the debate continues as to whether this poses a threat or a welcome boost to our economy, the facts speak for themselves.
According to a report in Business Spectator, Chinese investment in Australian commercial property in 2014 was $4.37 billion, which amounts to almost half of that country’s total investment in Australia. This figure had risen from 14% in 2013. But why is Australia so hot right now, and why is it popular with Chinese property investors in particular?
Commercial property investment gives instant returns
The answer seems to be the ease with which returns can be gained from commercial property. A breakdown of Chinese investment in Australia shows that only 11% of investment in 2014 was in mining, while only one per cent was in agribusiness.
In comparison to these two industrial areas, a commercial lease requires less capital investment and with the right rental management to look after tenants, requires much less ongoing attention on the ground. The rental returns are even greater than residential properties – according to realcommercial.com.au, data shows that residential returns on a unit average 5%, while commercial properties show returns of 8 to 10%.
What affects Asian investment in Australia?
An Asian investor looking at Australia sees a country that is politically stable and has a well-governed financial system with relatively little state control. This contrasts with China, for example, where all property is state-owned and a commercial lease from the government lasts 40-50 years, after which it may or may not be renewed. In contrast, most Australian commercial properties are freehold.
According to the Commonwealth Bank’s managing director and global head of real estate, institutional banking and markets Graeme Ross, those Asian countries that are investing in Australia also have a low dependency ratio, which is the proportion of the population that is no longer working and therefore not saving and not investing overseas.
China and Korea’s dependency ratio is about 35%, but Japan’s is 62%. This means the dragging effects of an ageing population, which are already hindering Japan’s economy, will likely not become a problem in other Asian countries for some 20 years.
The importance of property management
Asian investors must still rely on Australia-based property managers to make sure they comply with local regulations. Background checks on the finances and references of a potential lessee are part of any property appraisal, in addition to looking at the terms.
Property management is not an area that can be left to chance, and it’s an area that’s growing thanks to Asia’s continuing love affair with Australian commercial property.