What sharemarket turmoil will mean for the commercial property market
20 AUGUST 2019
The Australian sharemarket suffered its worst day in 18 months last Thursday, the ASX dropping around 3%, wiping away $60 billion – and one property expert says this will pull investors towards alternative assets.
US-China trade tensions continue to simmer, and global growth is slowing at an alarming rate with central banks fighting to keep fragile economies afloat with short-term stimulative measures; US President Donald Trump has called for crisis-era Fed cuts and a return to quantitative easing.
This is causing many to fear a recession is inevitable and Quintessential Equity’s Executive Chairman Shane Quinn believes the precarious environment will make property an obvious target as investors lose their risk appetite.
“I don’t have any doubt that investors are looking to reallocate their equity to safe investments and their return hurdles have definitely dropped. We’ve seen a major difference in the last few months in terms of investors’ appetite as they look for lower and safer returns,” he said.
“I believe property still has pockets of opportunity as pure property fundamentals underwrite the purchase and ownership of assets.
“In the last nine months we’ve been able to place over well over $100 million of equity into assets from our first Master Fund which has been very well received by investors and we believe these assets have similar characteristics to our other assets that have delivered an average 23.4% IRR net to investors.”
Whilst the demand for real estate has been growing for several months due to low interest rates and bond yields, Mr Quinn warns against investing in property without a sound investment strategy.
“In my opinion the big issue in property at the moment is that people are buying due to passing cash flow and the first thing you lose in property is cash flow. You’re left with the price you paid and the quality of the asset that you purchased and that’s my fear for some of the people investing in property at the moment,” he added.
Despite the perilous economic outlook, Mr Quinn remains sanguine that prudent investors can enjoy healthy returns regardless of market conditions.
“If investors stick to pure property fundamentals, property still offers a safe haven where no matter what happens in the market, investors will feel comfortable that they own well-located, good quality property and can ride out any market cycles and competitively seek tenants to maintain long-term stable cashflow.”
“We’ve seen such an appetite from our investors for property with intrinsic value that we’re about to launch capital raising for our second Master Fund to raise approximately $150 million of equity to take advantage of properties that have strong intrinsic value that can attract and retain long-term cashflows in the buildings.”
Quintessential Equity is currently conducting due diligence on an industrial asset and will launch its second Master Fund once that property has been acquired.