The demand for Australian investments has increased significantly over the last several years, as foreign investors continue to drive the strong growth across a broad range of Australian assets, including, commercial and residential real estate, infrastructure, government bonds and other financial assets. Since 2005, the total net investment into Australia has continued to increase with Australia attracting a larger proportion of foreign capital from the APAC region. Australia’s level of investment has also been one of the highest amongst other APAC markets, with Australia continuing to out-perform other foreign markets in terms of interest rate levels, higher yields and strong economic growth.
In a snapshot, the Australian economy has grown annually at approx. 3% over the past seven years. The Australian economy as a whole also continues to enjoy the global spotlight, buoyed by our steady recovery from the financial crisis, a strong AUD and the growth in demand for our commodities.
As foreign investment into Australia rises, investors are seeking to diversify their portfolios away from traditional equities and to capture stronger growth and higher returns in the mining sector, commercial and residential real estate and other financial assets. Foreign investment in the commercial property market alone has risen by $18.8b since 2005 (across the office, retail and industrial sectors) with Australian real property turnover accounting for 5% of global property turnover in the past 3 years, well above Australia’s GDP weighting of 2%.
The question now for the Australian market is how to predict future trends and changes in demand as Managed Investments are pushed into the spotlight as the vehicle of choice to cater to both foreign and domestic investors over the medium to long term horizon.
In recent years, Managed Funds have focused on investment strategies that provide higher returns and diversification for foreign investment based on the following trends:
- Increased capital flows into Australia towards equity and direct investments, in line with the mining boom;
- Demand for Commonwealth Government bonds is another draw card for foreign investors, with the level of foreign investment rising from 50% to 70% over the past decade;
- Australian real property continues to draw in a steady flow of risk adverse foreign investors. The appeal for investors being the highly transparent and liquid nature of Australian real property across both commercial and residential real estate;
- Europe and Asia continue to dominate foreign investment into Australia, with Singapore, the US and Germany together representing the largest source of net foreign investment since 2005;
- Asia has however overtaken US/Europe in terms of the level of investment into Australia in 2013, with the total amount of capital investment sourced from Asia increasing by 140% into global markets in 2013; and
- An emerging threat from developing markets, attracting foreign and domestic investors.
Going forward, what we can expect in the future is that the demand for Australian assets will largely be dependent on foreign appetite and the combination of Australian yields and risk profiles relative to the performance of global assets. Whilst Australian Managed Funds can expect to see at least continued foreign demand in the short to medium term, particularly from Asia, it is unclear how big a role domestic investment with play (relying on the superannuation and other institutional investors).
What is clear is that the challenge for Australia as an international financial hub will continue to be dominated by the relative performance of Australian assets and the focus on our strengths; our economic and political stability, market liquidity and transparency and monetary policy.
Members of the One Investment Group act as the trustee and investment manager of many managed investment trusts (MITs) which enables foreign investors with access to the concessional withholding tax withholding regime. One Investment Group is able to assist with both the establishing and maintaining MITs.
One Investment Group is a leading provider of trustee services in Australia with trusts with investments across various asset classes including property, infrastructure and equity. One Investment Group currently acts as trustee of in excess of 150 trusts with in excess of $8bn of assets.
Should you be interested in establishing a MIT or if you are looking for a trustee and/or investment manager for your MIT, please contact us.