The country’s top property bankers have shared their thoughts on key themes in the market. Here’s an edited transcript of the roundtable.
Mitchell Schauer, managing director, investment banking, Jarden
There is currently a significant disconnect between where the listed sector is pricing real estate versus the direct property market. Take the office-dominated REITs as an example, where stocks like Dexus are trading at a 35 per cent discount to net tangible assets – the discount would be wider if you ascribed value to its funds management platform – yet office sales are occurring in the marketplace at discounts to book at much smaller discounts than where the listed stocks are trading.
Property will stabilise if central banks stick to one or two 25bps rate rises early next year and then plateau. Anything above that and we will see further valuation pressure. In the listed sector, we are still waiting to see the impact of higher rates on distributions and interest cover ratios. The February reporting period will be the first real look at that. REITs will need to consider whether they cut distributions in line with operating earnings or increase payout ratios.
Retail will be an interesting asset class in 2023 as the impact of much higher interest rates bites. The Australian consumer is facing a number of headwinds as we go into 2023. House price declines are expected to continue as the impact of higher interest rates and mortgage serviceability continues to decline and we expect a peak-to-trough decline in house prices of 20 per cent. Mortgage rates could rise from circa 2.5 per cent to circa 6 per cent and above as the variable rates kick in.
Alternate asset classes that we expect to do well include childcare; healthcare; rural; self-storage; manufactured housing/retirement .Quality assets and sub-sectors with reversionary or contracted real income growth, attractive tenant attributes, and rapid institutionalisation will outperform on a relative basis and continue to be sought-after.We like scalable alternatives such as residential-for-rent , agriculture-backed assets, and real estate credit.
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