Category: Rss-feed-market

In this paper, we explore the material ESG issues we are facing globally, the key drivers for action, and the important role that the real estate industry, asset owners, customers, partners and the community have to play in driving change that delivers positive outcomes, while ensuring the assets we manage at AMP Capital continue to perform a long way into the future.

Author:  Chris Nunn, BA, LLB, MSc Head of Sustainability – Real Estate Sydney, Australia

Source: AMP Capital 16 Jan 2020

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. It should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

https://vimeo.com/371515683

The market backdrop

Investors are resetting expectations for returns amidst continuing pressures in the economic environment as the world continues to experience global political uncertainty, sluggish economic growth and trade tensions between economic powerhouses. Interest rates are now expected to remain lower for longer than first anticipated.

In this context, investors are turning to asset classes better able to deliver attractive returns. In particular, they’re seeking out investments that exhibit defensive characteristics. There has also been significant growth in global assets under management, underpinned by the growth in the middle class of developing nations.

Market reactions and considerations

As a result, investors are continuing to direct cash flows to non-residential real estate.

There is some difficulty in this approach. Globally, investors are under-allocated – unable to place all targeted allocations to real estate – and seeking to increase these targeted allocations. However, the scarcity of this asset class means the investable universe is somewhat fixed and, unlike other asset classes such as bonds, there is no unlimited supply to meet investor demand.

For example, there are only 18 premium office buildings in Sydney, Australia and six in Melbourne, Australia. A global investor interested in the best assets in the largest markets of the Australian office sector will find the potential of that market restricted.

Patterns worldwide

This imbalance in supply and demand is driving commercial real estate asset values across the globe. While record high pricing has tempted us to call the peak of the market over the last three years, the attractiveness of the sector amidst such uncertainty and volatility means we expect the cycle to continue to extend.

Historically, real estate investment has been dominated by investment in the office and retail sectors, however as part of this search for supply we are witnessing a shift towards logistics as well as growth in demand for non-traditional sectors.

The logistics sector has benefited from a number of factors, including the growth in e-commerce, improvements to the supply chain, the increased use of robotics, and savings in transportation costs by being located close to the customer. Property is typically a smaller part of the cost structure of an online retailer, and the benefits of proximity allow substantial capacity for these businesses to pay more for well-located accommodation.

Whilst the outperformance of logistics is attractive, it is a sector that is difficult to scale up – there is only a certain amount of suitable property located in close proximity to large residential centres. Given these constraints, the next port of call for investors are non-traditional sectors that look set to be beneficiaries of global mega-trends.

Examples of this abound. The exponentially increasing global demand for data will require a vast expansion of capacity and in many cases different model of communications infrastructure, such as the proliferation of edge data centres that looks set to accompany the move to autonomous mobility. An increasingly urbanised population and declining levels of housing affordability is fuelling demand for alternatives, such as high-quality manufactured housing. A rapidly ageing population and a shrinking taxpayer base is shifting the onus for aged care provision onto the private sector.

This diversification of cash flows into real estate has led to the compression of yield spread between the more traditional sectors and these newer investable sectors.

Further investment in these sectors will broaden this diversification and more effectively disperse risk across real estate, with different factors driving performance in each sector. Under this new model of real estate investment, management expertise becomes increasingly important as opportunities open up that are outside of the traditional sectors and, in many cases, further up the risk curve.

With capitalisation rates at record lows, driving income and managing risk have become key to growth. Performance is increasingly specific to the asset concerned, opportunities are more difficult to identify to the casual investor, and the management of environmental, social and governance (ESG) considerations are paramount to achieving sustainable value.

Real estate is a sector exposed to considerable regulatory influence, entailing both upside and downside risk. The consideration of ESG factors, especially in the current political climate, is unavoidable, and should be ingrained in the active management of the asset, at every point of the buy-hold-develop-sell cycle.

As the world grapples with uncertain prospects across a number of other asset classes, the outlook for non-residential real estate remains distinctly positive, with sound property market fundamentals still at play, and investors continuing to be attracted to the defensive characteristics of this asset class.

Author: Claire Talbot, Fund Manager – Real Estate Sydney, Australia

Source: AMP Capital 20 Jan 2020

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

https://vimeo.com/377459230

To the relief of homeowners, the Australian market has performed exceptionally in the second half of 2019. This much-anticipated change in direction for the housing industry has set the tone for the year ahead.

The road so far

In May the Coalition government unexpectedly won the federal election, which removed some of the risks around potential changes to property taxation; then the RBA resumed a program of monetary easing; and finally, the Australian Prudential Regulation Authority (APRA) announced it had reduced the interest rate used for bank serviceability when assessing household mortgages.

In combination, these occurrences triggered a recovery in Australian house prices from the middle of the year, and they’ve strengthened further over the past couple of months. The increase was a welcome change after consecutive month-on-month declines for nearly two years.

In looking at recent trends in the housing market, it does appear as if Sydney and Melbourne property prices will likely rise by about 10-15% over the next six to twelve months (which is heavily predicated on the likelihood that RBA will continue to cut interest rates).

Therefore, there are three key concepts that should guide our thinking around the housing market in the near-term.

What could be on the cards?

First, we anticipate the RBA will announce in early 2020 another two interest rate cuts from the current cash rate of 0.75%. There’s also a risk that the RBA will begin quantitative easing, which would have the likely effect of reducing bond yields and the level of borrowing over the medium to long-term. The question of whether and in what manner the RBA might proceed with QE will have a large bearing on home prices over the new year.

Second, we need to keep an eye on credit data to obtain an overall assessment of borrowing, less the repayments that households are making on their mortgages. To date, we’ve noticed the credit data upswing hasn’t been as strong as the increase in lending or in home values. The reason for this is a lot of households are still keeping up their repayments, despite recent interest rate cuts.

As a result of this, households are deleveraging, which is positive for financial stability. If, on the other hand, we detect that credit data is picking up quite significantly (particularly for investors) it may heighten the risk that APRA responds by introducing macroprudential tightening tools.

And third, we need to keep in mind the dynamics between housing supply and demand. Over the past six to twelve months building approvals and new home construction have fallen significantly. The drop was largely anticipated, due to the considerable run-up in housing construction and overall increase in market housing supply since 2014, but the recent fall presents a substantial risk for near-term supply.

Thanks in no small part to steady population growth over the years we still have a very strong demand for housing in Australia. However, if supply continues to trickle so slowly into the market, or building approvals remain sluggish, we risk a period of undersupply in Australian housing and home prices will likely continue to rise as a result.

Taking all of these factors into account, the overall picture for the Australian housing market over the next one to two years is that after initial and significant gains in Sydney and Melbourne, we should see prices start to stabilise – running at about 5% yearly growth over the near-term.

Author: Diana Mousina, Economist – Investment Strategy & Dynamic Markets, Sydney Australia

Source: AMP Capital 18 Dec 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

https://vimeo.com/377480434

Determining the best option for income investment can be a challenging task, and retirees in particular have a specific set of needs that set them apart from other investors.

A decade ago, generating an income in excess of six per cent was very achievable, and could be diversified across a number of relatively low-risk asset classes such as long-term bonds, term deposits and residential property.

Today, however, it’s a different story, with fixed income and annuities returning record-low yields. High income options are now very limited, and investors must search hard and take on a level of additional risk in order to secure sufficient and reliable yields. In this environment, equities look to be the best way forward.

Not only are equities able to generate strong cash flows, in many cases they also provide franking credits. Having escaped regulatory risk in the May federal election, franking credits have become a very important and stable driver of income returns in a retiree investor’s portfolio.

Alongside stable legislation there has also been a record number of franking credits dispensed in the Australian share market. Companies are delivering record amounts of franking credits through dividends, a massive number of off-market buybacks and increased special dividends. The record was set in 2018 and the second half of 2019 saw a strong run rate, suggesting promise for this profitable trend to continue.

We believe that performance in equities will only increase over the short term . Returns from franking credits alone are currently almost equivalent to returns across cash, bonds and credit, and are higher than term deposits, fixed income or annuities.

Overall, taking advantage of franked dividends and franking from buybacks through Australian equities looks set to be an increasingly valuable part of a retiree’s ability to drive income from their portfolio over the next few years.  

Author: Dermot Ryan, Sydney, Australia

Source: AMP Capital 15 Jan 2020

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.