Property sector well placed to weather the coronavirus storm

Australia’s property sector is perceived to be well placed to weather the coronavirus storm, emerge from the crisis in good health and as popular with investors as ever. This was the message from an expert panel who addressed a recent webinar hosted by the Property Council of Australia. 

The panel included Carmel Hourigan, Global Head of Real Estate at AMP CapitalInvestors;  Stephen Conry, CEO of JLL in Australia & NZ; and David Harrison, MD and Group CEO of Charter Hall 

While all acknowledged their businesses were currently experiencing difficult times, they said they and their investors both local and international were still very confident about the outlook for Australian property. 

Charter Hall’s Harrison told the live-streamed event, entitled Insights and Actions Through Unprecedented Times and attended by 900 people, that he had experienced several economic cycles, including the last time Australia experienced a real recession in the early ‘90s, and he expected this would prove to be a much shorter downturn. 

He said Charter Hall’s global institutional investors, including sovereign wealth funds and pension funds across Europe, North America, the UAE and Asia, retained a positive outlook for Australian property investments. 

“Australia went into this crisis with one of the lowest levels of debt as a percentage of GDP in the Western World, and with both retail, commercial and industrial markets at historically low vacancy levels,’’ said Harrison. 

“The international capital we’re talking to feels Australia will come out of this crisis better than other regions both from an economic point of view, but also a fundamental property perspective.’’ 

JLL’s Conry agreed, saying it was difficult to predict which regions of the world would take the longest to recover from the economic fallout of the pandemic, but Australia would not be one of them. 

Hourigan of AMP Capital Investors said the sudden and dramatic impact of the pandemic was unlike anything she had seen before in her career and that as a major retail owner, AMP Capital Investors were expecting to see short-term declines in valuations of some of its assets. However, she was confident real estate would prove itself as an investment over the longer term. 

“In 12 months’ time, when you look at allocations across the super funds and other investors in a world  … where it’s going to be really low rates for a very, very long time, real estate is going to be a very attractive asset class,’’ she said. “So I’m confident that we will stand up to this very well as a sector.’’ 

Harrison agreed with her, saying investors would find few more attractive opportunities in the prevailing “lower for longer” environment. 

“We’re going to have low interest rates and low inflation around the world for quite some time to come,’’ he said.  

“And if you think about that as a spread of internal rates of return, discount rates or cap rates to bond yields and alternative investment types, I think there will be confidence from mum-and-dad retail investors all the way through to the top end of town in the resilience of real estate, both residential and commercial.  

“And so, I think there is going to be a continued demand that doesn’t see us go into what could possibly be in other parts of the world quite a deep and prolonged property downturn.’’ 

Harrison noted that although considerable economic damage had been wrought by the coronavirus lockdown, it was also possible to see new economic opportunities emerging. 

One of the great potential outcomes of this situation that people haven’t quite recognised yet is I think we will see a reversal of the decline of manufacturing in this country, with people looking to source supplies domestically, even if it costs more,’’ he said. 

“I’m seeing it already with people reaching out to small suppliers who haven’t traditionally been as competitive as offshore-sourced material or products. They are really starting to get an increase in orders and they’re asking us how we can help them expand their warehouse operations.’’ 

Hourigan agreed, saying she expected to see jobs returning to Australia when businesses such as call centres which had been offshored reversed the move in the aftermath of the global pandemic. 

The three panellists all said the federal government’s multi-billion-dollar stimulus initiatives to counteract the effects of COVID-19 on Australian businesses would play a huge role in minimising economic disruption and stimulating the subsequent recovery. 

“I applaud all levels of government for the work they’re doing in trying to deal with the health issues whilst also preserving the capacity for the economy to continue,’’ said Harrison. 

Conry said the government was providing good leadership 

“I always want to tell forums like this that I’d support any government initiative to get the budget back into surplus and then to start paying down debt,’’ he said, ‘’but I’ve changed my mind. The government’s health initiatives have been outstanding, but so too has been the JobKeeper program.’’ 

I think the stimulus we’ve seen is exactly the right strategy,’’ said Hourigan. “The wage subsidy is massive from my point of view because it’s retaining employees’ link to their employers and it’s giving confidence. 

“We’re a country with very low public debt, we can afford to be spending this money with interest rates at record lows. And it is going to be the thing that will ensure we don’t have too much collateral damage coming out of this, and pushes us towards a more U-shaped recovery.’’ 

This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.