AUSTRALIAN superannuation funds are expected to channel an extra $40 billion into real estate in the next two years, according to a survey released yesterday.
The funds, which collectively manage $360bn, are expected to increase their property allocation from 9.7 per cent to 10.5 per cent in two years.
This is according to a biennial survey by the Australian Institute of Superannuation Trustees, Russell Investments and the Asian Association for Investors in non-listed Real Estate Vehicles.
Combining this increased property allocation with the quickly growing pool of superannuation capital could release an additional $40bn in new capital for real estate investment, the survey finds.
This is a substantial sum for the Australian commercial property market — valued at about $200bn — to absorb. Super funds indicate in the survey that they will look offshore for assets because of a shortage of prime property in Australia.
Many super funds indicated that they were planning to conduct due diligence on properties overseas and next year could be a watershed. Almost 72 per cent of investors said diversification was the reason for going offshore.
And 46 per cent blamed constraints in the Australian market.
A further 43.6 per cent said they were seeking to invest in high-growth markets overseas.
The survey finds the strong Australian dollar is not a primary motivation for going offshore.
Many investors feel currency exchange rates are too volatile to form the basis of an investment strategy and consider the current favourable exchange rate an “an added sweetener”.
But there is caution. More than half the respondents say lack of knowledge of offshore property markets is a challenge.
“Recent equity market instability has prompted investors to seek alternatives to reduce overall portfolio volatility,” Russell Investments Asia-Pacific real estate investment director Martin Lamb said.
Non-listed property had always been known for its low correlation with traditional asset classes (such as shares), he said. Australian institutions were “savvy property investors”.
The survey shows the funds are clear-eyed about the opportunity to diversify property holdings and bolster offshore expertise.
Institute chief executive Fiona Reynolds said the study was timely, in view of the debate about the asset allocation of Australian super funds amid global sharemarket volatility.
“International property will be increasingly on the radar of those funds looking for greater diversification,” Ms Reynolds said.
The Future Fund made its first real estate investment in the US in March, acquiring a 49 per cent stake in a New York midtown office tower at an undisclosed price.
It also formed a joint venture with US pension fund and financial services group TIAA-CREF to pursue further US inevstment opportunities over the next two years.
Florence Chong From: The Australian September 08, 2011 12:00AM