Australian Funds Eye Overseas Property Investments

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The amount of Australian capital invested in international property is expected to increase in the next seven years, driven by the growth of Australia's pension system.

The funds are expected to allocate $75 billion to offshore investment in the next seven years, with 10 percent targeting international real estate, according to a new report from Jones Lang LaSalle.

By some measures, Australia's Superannuation system is the fourth largest asset pool in the world, with $1.3 trillion of assets currently under management. Contributions to the system are expected to reach 12 percent of individual salaries by 2020, adding to capital available for international property investment. 

In recent years, Australian capital has been mostly absent from international real estate markets since the financial crisis, after being among the biggest cross border investors, JLL reports. However, as domestic supply shrinks, international real estate markets are set to benefit. 

"Between now and 2020 we estimate the demand for direct real estate from Super Funds will outstrip domestic supply," John Talbot, head of capital markets, JLL, Australia said in the release. "Europe and the U.S. are likely to be the initial preferred destinations for this capital, although we are likely to see emerging markets increasingly benefit in line with their continued strong economic growth."

Emerging markets in Asia Pacific will likely be targeted in the medium to long term, as the region will account for up to 50 percent of the global institutional commercial property market by value by 2031, the firm predicts. 

Overall, Super Funds remain cautious about offshore markets but the trend is starting to shift. 

"AustralianSuper, the largest Super Fund in the country with $58 billion funds under management (FUM), is the exception having initiated a new strategy earlier this year to gain direct exposure to off-shore real estate," Alistair Meadows, head of the International Capital Group in Asia Pacific for JLL said in the release. "This new shift recognizes that the global real estate markets are an increasingly important long-term requirement for the Super Funds." 

Super funds are expected to up their overseas investments if risks from the past are mitigated.

"We expect the next wave of offshore Australian capital to emerge in the form of joint ventures and dedicated investment mandates with specialist local managers; all of which adds to the new liquidity in the global real estate markets," Mr. Meadows said.