Australia: Australia, A Land of Opportunity? Property confidence and investment

Last Updated: 24 March 2012
Article by Tom Cantwell


The resource-rich states of Western Australia and Queensland saw significant uplifts in industry confidence from already strong levels; whilst the big states - New South Wales and Victoria - both showed falls in confidence. Victoria dipped into negative territory, as did the Australian Capital Territory. At the extremes were the Northern Territory, with booming confidence; and Tasmania, in the doldrums. This demonstrates the difference that significant projects can make, with the Northern Territory being the beneficiary of the AU$30 billion IMPEX Ichthys Gasfield project and the resources boom in Western Australia, South Australia and Queensland leading to over AU$140 billion of committed investments to iron ore, coal, gas and associated infrastructure projects. These states will have their economies underwritten for the foreseeable future by the almost insatiable demand for iron ore and energy coming from China and India as the largest economies in Asia.

Victoria, which has consistently shown strong growth over the last 10 years, has finally started to lose its gloss. A change of government has led to something of a policy vacuum and the rate of population increase, which was 80,000 to 100,000 people per year over the last seven years, has slowed. Economic growth has slowed with it.

One of the key negatives is the continuing credit squeeze, which is anticipated to worsen rather than improve in coming months. Since the Global Financial Crisis (GFC), Australia has largely been beholden to the four major banks, who have found themselves overweight in property debt. When combined with the requirement to hold more tier-one capital to support property debt, they are unable to lend to the sector cost-effectively. Add to this economic uncertainty from the issues in Europe and it is easy for the banks to sit back and selectively allocate the available credit to only the best.

Traditionally when the big banks have stepped back from the property sector, the second tier and alternative market has stepped in to fill the void. With the GFC bringing an end to this secondary market, there is a significant gap, which is now being filled by foreign investors. Offshore private equity funds, sovereign wealth funds, pension funds, opportunistic funds and large private investors are all eyeing Australia as providing great opportunities for opportunistic style development returns in a relatively safe, transparent and sophisticated market. Initially, this money was coming in to satisfy mezzanine debt requirements of property developers, particularly in the residential market. However, the big four banks with their monopoly on senior debt have almost closed the door on mezzanine lenders by refusing to accept inter-creditor agreements or second-ranking securities behind their senior positions.

This is leading to a new breed of investor, which is prepared to co-invest through joint venture agreements, development agreements or even unsecured junior debt positions and more often than not, a combination of all of the above. This is lifting the risk profile of investment, but also enhancing returns for those prepared to enter the market.

With traditional Australian property developers being highly geared, the new credit environment means that there is ample opportunity for quality offshore investors. Generally, investors are coming in late in the development cycle, after planning approvals have been obtained, the project has been substantially or wholly pre-sold, the construction contract is in place and the senior debt arranged. An investor undertaking a thorough due diligence is therefore able to fully analyse the risks from the project and the likely returns.

As most investors are effectively acting in the role of junior lender, the bulk of the returns are usually able to be repatriated, subject only to the 10% withholding tax rate applicable to interest income. This ensures that the effective Australian tax rate on the investment is suitably low.

Recent volatility in exchange rates has impacted swap rate margins, however, with the United States indicating it will be maintaining its low interest rate policies until 2014 and the extent of the resources boom in Australia, it would seem that Australia's exchange rate is likely to remain high for the medium term, so many investors can factor that risk into their overall returns.

Residential development is not the only sector that is seeing offshore investment. The January Office Market Report indicated that sales of commercial property assets over $10 million were $5.6 billion in 2011, exceeding the pre-GFC total of $5.5 billion in 2007. Of these, 36% (just over $2 billion worth) of all CBD deals and 50% of all deals in Sydney and Melbourne combined were with offshore buyers (Knight Frank Office Market Report, January 2012).

This investment is being driven by strong office market fundamentals. While Sydney's vacancy rate at the end of 2011 remained at 9.6%, Melbourne's was a low 5.3%, Brisbane 6.2% and Perth only 3.3%. The net absorption in Brisbane and Perth was approximately 50,000 square metres each for H2 of 2011, being well above the long-term average and demonstrating the impact of continual growth by the resources sector and their suppliers in those markets. Whilst a significant 800,000 square metres of new stock has to be added in 2012, which is higher than the historic average, only 400,000 square metres will come on line in 2013 so that the two-year figure is in line with the long-term average. Very little of this supply is in the core Sydney market, with no significant new buildings to be completed over those years (Property Council of Australia's Office Market Report, January 2012).

With the scarcity of bank debt and the ongoing credit squeeze, the field is ripe for well-funded offshore players in the Australian market.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.