Boom For Australian Property Funds Has Only Just Begun

The Australian - August 19, 2006

The Australian property funds growth story has barely begun. The $120 billion now invested in listed and unlisted property funds will grow fourfold, according to business forecaster Phil Ruthven. Ruthven, chairman of IBISWorld, says Australia's total non-residential property assets -- commercial, retail, industrial and rural -- are worth about $1.2 trillion. He expects about 40 per cent of that will be securitised over the next few decades, in line with the US.

Ruthven says Australian corporations are finally waking up to the realisation they should be achieving returns on capital of four times the bond rate -- impossible if substantial property assets are sitting on the balance sheet, returning 10 to 12 per cent.

Like Wesfarmers's Bunnings hardware store chain, which sold its property assets into a listed property trust, or Woolworths, which recently sold 11 key distribution centres to fund manager SAITeysMcMahon and Lend Lease, Ruthven predicts an increasing number of Australian corporations will sell off every property asset they own.

Universities, for example, control more than $30 billion in property assets, which Ruthven says should be sold off-balance sheet and leased back. Farms are another sector ripe for securitisation, he says, pointing to Challenger's $115 million Wine Trust as an example of the way forward.

Australia's listed property trusts (LPTs) were the best-returning asset class of all in the 10 years to December 2004, according to research commissioned by the Australian Stock Exchange last year. LPTs provided an after-tax return of between 10 and 12.3 per cent a year (depending on the investor's tax bracket) while Australian shares, for example, returned between 9.2 per cent and 11.6 per cent a year. Sphere: Related Content