Why now may be the right time to invest in commercial real estate
Australia is easing its way tentatively out of the Covid-19 lockdown and starting to look ahead to the future. Since our Prime Minister Scott Morrison activated an emergency response plan on 27 February, the pandemic has impacted almost every part of our lives. Work, education, travel, economy, financial markets – you name it, it has felt the harsh effects of this invisible enemy.
Nevertheless, Australia remains one of a small group of countries worldwide that have managed to subdue the deadly Covid-19 coronavirus. This is a result of early intervention, the government’s $320bn economic stimulus programme and the typical Australian common-sense approach that put the onus on each of us doing the ‘right thing’. It also helps that we’re a geographically isolated country and that we acted fast to close our borders.
As a result, the World Economic Forum says we have a fatality rate just over 1%, compared with 6% in the US and 13.5% for Italy and the UK and we have also managed to stave off community transmission. This puts us in a stronger position to rebound from the impact of the lockdown far quicker than many other countries around the world.
And, despite initial doom and gloom predictions, our property market has so far escaped relatively unscathed. News.com.au says there had been fears that prices would collapse under the pressure of strict social distancing measures, dire predictions for unemployment and GDP growth, and rock-bottom consumer confidence. But, the latest data released for April found no material decline across the capital cities, with a modest gain recorded in Sydney, our largest market.
Richard Sheppard, chief property investment adviser at InSynergy Property Wealth Advisory and recognised property market pundit, is quoted as saying: “For those individuals who are in a position to take advantage of current market conditions, now is the time to organise your finance, finalise your strategy as well as your expert team, and start making offers.”
Why is now the right time to invest in commercial real estate?
Wefund echo the views of Richard Sheppard and other experts and suggest the following reasons why now is not the time to shrink back from expanding your property portfolio.
1. Low interest rates
In its 5th May announcement, the Reserve Bank of Australia (RBA) kept interest rates on hold at the record low of 0.25%. RBA Governor Philip Lowe said the cash rate won’t be increased until progress is made towards full employment and inflation can be held within the 2-3% target band. If anything, the RBA may even drop interest rates further, to 0%.
2. Lower market prices in certain areas
Despite property prices holding up overall, Richard Sheppard says buyers who purchase wisely can benefit from market prices about 3-7% lower than they were a month prior, in specific locations.
3. Secure property market
As the rest of the world looks enviously towards Australia for its success to date in managing the coronavirus and its fallout, it is becoming an increasingly attractive proposition for those wanting a safe, secure place to live or do business. The UK’s Daily Mail says marketers in China, for example, are already using Australia’s good performance to persuade parents of children who have been studying in the US and UK to look at Australia instead.
4. Tighter restrictions on international buyers
Under new coronavirus-related regulations, all foreign investment in Australian land or assets now requires approval from the Foreign Investment Review Board (FIRB) regardless of its value. Although designed to protect Aussie from predatory behaviour, the move will give local commercial property investors an advantage by removing competition from cash-flush overseas investors.
Wefund’s prediction of future trends
Based on their experience and observations of the market under coronavirus, Wefund believe that industrial, rural and agribusiness properties will hold their value best. Wefund have seen a drop off in commercial properties for sale and lease, with shopping centres and retail properties the most impacted, followed by hotels and office property. As a result, it is likely that these property types will experience some reduction in rent and/or values.
Industrial properties are doing particularly well, however, with leasing demand remaining constant. This is likely being fuelled by an acceleration of growth in online retailing.
The key for commercial property investors is not to bury your head in the sand, but to use the opportunity to look for medium and long-term opportunities. As businesses in vulnerable industries like hospitality and retail fail under COVID-19, this will lead to increased vacancies, which will impact yields and property values. This will provide opportunities for financed investors looking for a good price. The risk, however, will be whether these tenancies can be filled as the Australian economy moves into recovery.
What’s next?
If you want to take advantage of the current opportunities in the commercial property market – particularly in Melbourne and Sydney – check out Wefund’s streamlined registration and application process. They’ll do an initial evaluation of your financing needs then connect you to their pool of more than 60 top-tier lenders for non-bank property & development finance at competitive terms and rates.
Click here to register and start your loan application for funding to expand your property development portfolio: https://platform.wefund.com.au/register
Source: Why now may be the right time to invest in commercial real estate
