A recent M3 Property report has revealed that over $10.52 billion worth of foreign funds was invested into Australia’s property market over FY24, with a lift in foreign investments expected in the coming financial year.
While overall investment in FY24 is down from the approximately $15 billion invested in FY23, the firm said that this financial year’s result was still “satisfactory” due to the “pressures of inflation, geopolitical, stability and supply chain issues” faced by the global economy over the period.
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A shift in cross-border investment trends
The report noted that foreign investors make up a large volume of demand for the Australian property market across core and alternative assets as a result of their “large funding pool and risk tolerance”, with the US, China and Singapore traditionally making the largest contributions to Australian real estate.
Managing director for Queensland at M3 Property, Michael Coverdale, said that “the year ending June 2024 was notable for the changes in the mix of overseas investment sources into Australia”, with Japan notably re-emerging as a “powerful investment force” over FY24.
“While our real estate market remains solid, it’s not as robust when compared with previous financial years. We’re seeing significant offloading of assets from countries facing their own economic headwinds as well as small capital allocations because of liquidity reasons,” Coverdale said.
Investment and equity firms in the US displayed strong interest across a wide range of property sectors in Australia, while Chinese and Singaporean investors focused on traditional and core assets such as retail, industrial and office opportunities. The latter notably divested a large number of holdings from their portfolios over the 12-month period.
Coverdale explained that the interest from Japan might be due to that investor cohort’s acquisition strategy.
“Japanese investors are typically attracted to counter-cyclical opportunities, and they became active in the Australian market once again in FY24 after a few years of inactivity, especially in the office sector, with $2.33 billion in net investments,” he said.
The report showed that activity in Australia’s prime office market has benefitted from lowered interest rates from central banks overseas and the improved cost and availability of global capital.
As a result of these conditions, M3 Property said that foreign investors such as German-based Deka, Singapore-based Keppel and SingLand, and Hong Kong-based PAG, have all purchased assets in Sydney and Melbourne over FY24.
Leading sources and asset preferences for cross-border investment
Looking at investment acquisition volume throughout FY24, the report’s findings revealed that the US maintained its number one spot in FY24 at $3.3 billion, followed by Japan with $2.43 billion, Singapore at $2.21 billion, China including Hong Kong with $1.6 billion and Canada at $580 million.
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“Importantly, some of our strongest and longest-term investors like those from the US, Singapore and Hong Kong are still actively seeking opportunities in this market,” Coverdale said.
Nevertheless, M3 Property highlighted that foreign investment growth across asset types in FY24 varied significantly by market.
The office market saw the strongest performance over the financial year, driven by high capital values and improving occupancy demand, with $4.1 billion invested across 18 office asset sales to investors from Japan, Singapore, Hong Kong, Malaysia and the US.
Industrial assets recorded the second-highest volume of transactions in FY24 and an acquisition volume nearly 50 per cent higher than disposal volume, driven by active investors from the US, Canada, Hong Kong, Singapore and the Netherlands.
Development sites were another attractive asset class for cross-border investors in FY24, with $1.3 billion being invested across 26 sales.
In contrast, demand for retail assets lagged behind other commercial categories such as office and industrial, said to be consistent with residential and alternative housing assets, while alternative assets such as non-core and hotel assets recorded substantially reduced market activity.
Notably, non-core assets were observed as the only class with negative net investment from cross-border investors, underscoring international trends and demand for core asset types.
Future outlook for cross-border investment
Looking ahead, M3 Property forecast a positive change for the local property market in FY25, driven by shifting macroeconomic conditions on both the local and global scales.
The firm highlighted global economic improvements, Australia’s favourable exchange rate for cross-border investors and “likely changes to the Reserve Bank of Australia’s monetary policy” in projecting that “international investment is likely to flow into Australia more freely this financial year”.
“All signs point to the debt and investment markets changing from a period of volatility to stability, and even growth, in a few of our core investment markets,” Coverdale said.
This gives us some confidence that foreign investment will improve throughout FY25, most likely with a focus on retail, office and industrial asset classes, as the global economy steadily recovers from the less favourable conditions of previous years”.
