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Commercial Property Update: Funding, investment and harmonisation
Gary Best, Partner, Real Estate Peter McMahon, Partner, Real Estate
David Bushby, Boardroom Radio
We're speaking with Gary Best and Peter McMahon from the Real Estate team at Clayton Utz.
We're looking in particular about the funding landscape for commercial development in Australia,
the harmonisation of property laws across the country, and the appetite for foreign
investment into Australia.
Gary if I could just start with you, of course the GFC resulted in numerous lenders exiting
the commercial property market. For those that do remain managing their loan portfolios,
what are you seeing on the ground?
I think lenders are still very risk averse. I think they're choosing their borrowers carefully
so some people can get money, other people can't get money. There's still a pricing issue
of how much debt will cost, and there's still the issue that lots of banks still have loans
in there that they've been careful not to flood the market with, but they're not getting
any better, so the time is coming closer where banks will actually start to say we need to
offload these loans off our books. That's going to mean that into the market will flow
some possibly good buying opportunities but there will be increasing supply of product
that will need to find buyers to soak them up.
Gary, in terms of new lending in particular for large commercial development, how is the
activity, and how are funds typically being sourced for large commercial projects?
I think the larger development sector is improving. It's still pretty conservative and pretty
quiet but there are signs of life, so even if you turn over the AFR you'll see more articles.
There are some of the larger players who are saying we need to get back into this sector
and become more active, and if you look around there are the signs of increased activity.
So you've got 1 Bligh Street just finishing, our new offices, you've Grocon and its partners
involved in 161 Castlereagh Street. You've of course got people pretty interested in
Barangaroo and there are a number of other projects that are out there - Mirvac and 8
Chifley and Green Square - so I think there's a bit of life.
It's not easy to get debt for those projects but it is possible and people are sourcing
money through the investment arrangements, overseas super funds and pension funds are
coming in and people are looking to different fields to provide the funding, some of which
needs to be found from sources other than traditional debt providers.
And Peter just turning to the patchwork of State-based laws governing real estate across
this country, are we making any progress towards harmonising those laws?
David you are correct. It is a patchwork. They do need to be harmonised. We are making
progress. Clayton Utz and the Property Council of Australia and the various peak bodies are
working towards that harmonisation through the Property Law Reform Alliance of which
I am a previous chairman.
We have very positive responses from Attorneys-General around Australia and other key people. We've
drafted model legislation and now we need to go to the next stage.
The benefits when we achieve this will be enormous time and cost saving to those involved
in property in Australia.
So you spoke about the cost savings and efficiencies but will that actually unlock value in the
real estate sector?
Considerable value, yes. It is very important to achieve this and the value to be unlocked
will be substantial.
And just finally in terms of foreign investment, Gary spoke about foreign sources of funding
but in terms of investment into real estate by foreign interests what's the appetite like
for Australian real estate?
David I'm in Asia on a regular basis and I'm seeing a lot of interest in Australian real
estate. Sovereign wealth funds and a number of Asian companies are very interested in
our property projects. Of course at the moment the Australian dollar is at a historical high
and that is suppressing some interest but the appetite from Asian companies and sovereign
wealth funds will increase over time because it is recognised our political climate is
safe, sound and stable. We have some excellent developers and some fabulous projects and
there will be great opportunities in the future.
Gary, Peter, thank you again.