Property’s time in the sun – insights from Bernard Salt on what investors need to know
After the real estate market’s unanticipated pandemic surge, property trends are being shaped by the post-COVID lifestyle expectations of Australians. So where will the next wave of property investment opportunities come from?
At a recent Investor Breakfast Briefing hosted by alternative investment platform AltX, social commentator Bernard Salt discussed the demographic trends underpinning Australia’s property momentum, and the growing interest in private real estate debt in Australia. The highly engaging session, held in Melbourne on March 1st, focused on opportunities in a ‘new breed’ of real estate post-COVID.
Property at the heart of Australian values
Australians (baby boomers in particular) have a strong affinity for real estate, according to Bernard. And as a relatively rich country per capita – ranking 13th globally by GDP in 2020 – the place where they feel most comfortable investing their money is in housing.
With record-low interest rates, Australian investors have been snapping up properties. Investor loan commitments rose 6.1% in January 2022 alone, according to ABS data. But wholesale investors are also putting their money into the debt underpinning all that activity – investing in first mortgage-backed private real estate loans through platforms like AltX.
AltX research into investor preferences revealed one in two investors say the main reason for investing in private real estate debt is that they know what they’re actually investing in, and 47% prefer to invest in individual deals. And while they may not benefit from the asset’s capital gains over time, they can expect regular income in the form of interest payments – with 72% saying it offers higher yield than other asset classes.
This makes it an increasingly popular alternative investment option for baby boomers, with 61% of AltX investors agreeing private real estate debt is a core part of their investment strategy in retirement. And that’s not surprising, given that generation has shown an interest in bricks and mortar investments throughout their life.
I can see the logic of investing in private real estate debt, especially in Australia – Bernard Salt
Property is underpinning business optimism
In a recent opinion piece for The Australian, Bernard noted most of the net new businesses created in the 2021 financial year were in construction – despite the lack of immigration-fuelled demand in that year of COVID border closures.
He suspects many of these businesses are servicing home improvements and the residential project pipeline. And this breed of entrepreneurs also symbolise the central tenets of the Australian way of life: property, home ownership and being your own boss.
Looking forward, those additional 16,000 construction business owners have plenty of cause for optimism. As do property and private real estate debt investors.
“Australia’s real estate prospects are underpinned by population growth, which remains high by global western standards,” says Bernard. “As Australia recovers from COVID and ratchets up immigration, this will heighten demand for all types of real estate product.”
Trend analysis stretching back over a century shows immigration driving demand for housing, infrastructure and more in Australia. And the number of Australians born overseas rose 30% between 2010 and 2020 – largely driven by growth from India, China and the Philippines.
“Australia may not recover to pre-COVID immigration levels, but even moderate immigration will build the case for real estate demand,” Bernard says.
Demand will also be driven by the next generation of homebuyers: millennials. Over the next five years, the fastest-growing age group in Australia will be those in their late 30s and early 40s. This ‘mini boom’ generation is ready to upgrade from inner-city apartments to family homes, and their lifestyle expectations have adjusted to new ways of working and living through a global pandemic.
Property will be shaped by our post-COVID lifestyles
Bernard believes the pandemic has ushered in a return to Australian core values – including an emphasis back on our homes.
“Today, we expect to be able to work, study, shop and be entertained within our family home,” he says, explaining floorplans may now include a ‘Zoom room’ and home gym in the garage.
He dubs another major COVID phenomenon VESPA: Virus Escapees Seeking Provincial Australia. Those who have the opportunity to work from home are moving to regional areas, within striking distance of a major capital city or centre.
This was especially pronounced in Victoria, with significant net overseas, interstate and intrastate migration from the southern state between June 2020 and March 2021.
All these trends will potentially change how we live, work and play in city centres, and what we need from our urban landscape. Bernard believes people will still want to stay close to where they live – being close to shopping and entertainment and having a sense of community connection are all more important than ever. And he sees this fuelling a shift from the ‘fried egg city’ with the CBD at the core, to a 20-minute city where strong suburban hubs provide everything people need.
“Demand for real estate may well shift in the post-COVID world, due to changed consumer behaviour (less shopping centres, more fulfillment centres) and working from home (more spacious houses, less demand for city centre office space),” he says.
How we live and where we live are still fundamental to Australia’s core values – and property and private real estate debt investors are in the ideal position to benefit from the knock-on effects of an extraordinary period of property and construction activity.
Learn more about the changing expectations of private real estate debt investors. Download the 2022 Private Real Estate Debt Investor Outlook.