Australia’s low interest rates will continue to lead property investors to choose commercial real estate says the Financial Review.
The forecast comes despite the speedy rise in bond yields over the past month and a large amount of offshore equity entering the market. In the past, once bond yields have started to rise, commercial property investment levels have declined as bonds are are then regarded as a less risky investment.
Economic experts are now saying that the bond yields are not likely to slow investments into the commercial property market.
At present, the spread between commercial property yields and bonds is considered high, not only in Australia but in most developed markets worldwide.
The 10-year bond rate (Australia) has increased to 2.95 per cent from 2.3 per cent only a month ago. The dividend yield on Australia’s real estate investment trusts (REITs), is currently sitting at more than 5 per cent.
Investors coming into the market at this point are being drawn to these types of assets. If interest rates stay at current levels, commercial property returns should remain reasonable.
An interest rate cut could lead to a number of new projects being approved or brought forward. This would have less to do with supply and demand, and more to do with the availability of more affordable financing.
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