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Thursday, September 18, 2008

Australia lures property funds

SYDNEY: With US$12 billion (US$1 = RM3.45) of commercial buildings up for grabs and its currency weakening, Australia is becoming a prime target for global funds keen to snap up bargains offloaded by troubled property trusts.

The Australian commercial property market, long dominated by local players, has held its value because of low vacancy rates. But highly leveraged real estate investment trusts are in trouble because the global credit crunch has raised borrowing costs.

Cashed-up Middle East investors and German funds with low-risk, low-return expectations are sniffing out deals, according to Robert White, president of New York-based research firm Real Capital Analytics.

"A lot of investors want to invest in Asia-Pacific for allocation reasons but they're scared of China, and there are limited opportunities in other markets," White said. "So Australia has emerged as a very attractive market for Germans, for Middle-East investors."

Australian developer Ashington said this month that it was seeking foreign investors to stump up a A$200 million (A$1 = RM2.74) fund to buy buildings during what it believes will be a short window in 2009 for bargain hunting.

And Abu Dhabi Investment Authority, the world's largest sovereign wealth fund, wants to expand its property portfolio in Australia, according to UAE newspaper reports.

About A$15 billion worth of assets are up for sale in Australia, according to consultants DTZ. And Australian property firms, which have traditionally relied on superannuation pension funds, are also looking to partner with foreign funds to broaden their capital base.

Although global funds are drawn to high growth markets such as China and India, many conclude that Australia offers the best returns compared to risk, according to Alistair Meadows, a director at DTZ.

Australia, where nearly 70 per cent of investment-grade buildings are securitised, ranks second in the world for pro-perty market transparency, behind Canada, according to a Jones Lang LaSalle index.

By Reuters

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