Australian investors urged to look beyond local property as global opportunities emerge
Claire Smith
For most investors, Australian direct property has always looked like a safe and grown-up choice – tangible, local, familiar. In comparison, global private real estate has often looked like the exotic alternative. But Claire Smith, head of investment directors, public and private markets at Schroders, says the facts increasingly point the other way.
The familiar Australian residential trade is more exposed to changing tax policy than it used to be, which may prompt a shift in thinking, Smith says.
“For many Australian advisers, that line from their clients that they already own an investment property effectively ends the conversation about further investment before it begins.
“But owning one or two Australian assets is not the same thing as owning a genuinely diversified global property allocation.
“Concentration in a single geography, structure or sector can erode the portfolio benefits real estate is meant to provide. But a well-diversified pooled vehicle can preserve those benefits and reduce concentration risk. Institutional investors have understood this for years.
“The global opportunity set offers deeper diversification across regions, sectors and structures because of its access to institutional and off-market transactions, and the ability to participate in operational businesses and platform profits. At the same time, the global real-estate cycle is now offering better relative-value opportunities, precisely because repricing and recovery are not happening everywhere at once.
“It offers something Australian direct property often cannot – genuine global diversification, income backed by structural demand drivers, and access to active operational value creation, rather than passive rent clipping alone.
“None of this means advisers should treat the fund as a drop-in substitute for risk-free income.
“Private real estate carries liquidity, currency, valuation, tenant, development and market risks, and the semi-liquid structure uses managed liquidity rather than daily dealing.”
But she says, for advisers and consultants who want property exposure to do more than concentrate clients in one country, one tax code and one familiar asset class, a global real estate fund could be the answer.
“Global exposure gives advisers access to the part of the opportunity set that local direct ownership usually misses – different policy environments, different demographic drivers, different economic cycles, different repricing speeds, different occupier markets and different lease structures.
“This is particularly relevant in the current environment. The traditional Australian direct property model may look materially less attractive in the years ahead as proposed changes to negative gearing and capital gains tax concessions begin to reshape the post-tax return profile of local property investing.”
For advisers, that changes the conversation, Smith says.
“Australian direct residential property has often been sold not only as a growth asset, but as a tax-aware strategy. But if the tax shield is being narrowed for future purchases of established housing, then the investment case has to stand more squarely on underlying economics.
“That is where a globally diversified real-estate strategy starts to look more compelling because it does not depend on a single domestic tax regime to do the heavy lifting. Instead, it earns its keep through portfolio construction, sector selection, local execution and operational value creation.”
