The increase in population numbers in Australia has made the domestic property market and in turn real estate income trusts (REIT) more attractive for investors, a local boutique fund manager has said.
“While we see increasing downside risks for economic growth in Australia and offshore, there are still supportive tailwinds for the REIT sector. Population growth is robust and forecast to continue,” SG Hiscock and Company portfolio manager Grant Berry noted.
“Research from CBRE has forecasted that the Australian population will rise to 32 million by 2035, which represents an increase of 4.5 million people over the next 10 years.
“Population growth ultimately drives occupancy demand for property. In Australia, the growth is much greater than most other developed nations and that growth will help to support the demand for Australian commercial property.”
According to Berry, the specific sectors of the market that will benefit from the increase in the number of people living in Australia include hospitals, housing, retail and office space, and logistics facilities.
“The CBRE research shows that with each additional 1 million increase in the population, it will require 4.5 million square metres for logistics, 800,000 square metres for retail, 800,000 square metres for office and 420,000 new residential dwellings. These are all significant numbers,” he revealed.
Further, he recognised falling bond yields had made dividend yields from the property sector even more attractive for investors.
“Bond yields for valuation metrics, that is, nominal bond yields, feed into discount rates and inflation-linked bonds (real bonds), which we believe have relevance to capitalisation rates and property yields. Both are currently elevated in a post-global financial crisis context. If property is priced with reference to this, it sets up the asset class for good long-term returns,” he explained.
With regard to investing in property via REITs, he pointed to some additional benefits individuals can enjoy by doing so.
“Investing in an Australian REIT can help investors diversify, have exposure to high-quality assets and lower transaction costs without buying actual property. Investors gain exposure to different property sectors and real estate assets and such diversification is hard to achieve by investing directly in commercial property given the significant costs and scale involved,” he noted.
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