Are Australian Property Funds Safe from Brexit?

Impact of BrexitThe impact of the U.K.’s majority vote to leave the European Union has already caused jitters to the global property market, despite only happening for just more than a month.

Several real estate investment funds with exposure to the U.K. market, including Australia-listed Henderson Global Investors, have frozen around £35 billion worth of open-ended real estate funds due to the economic turmoil post-Brexit, according to The Australian.

At the same time, the publication cited investment bank UBS in reporting that commercial property investment trusts are likely to achieve earnings and distribution growth, which would outperform the broader market in the past fiscal year.

Domino Effect

Charter Hall Group CEO David Harrison downplayed concerns that the effects of Brexit would hit the Australian market. He based this assumption on the fact that Australia still has not abandoned open-ended property funds for retail investors.

However, an increase in domestic funding costs could be a consequence of frozen British real estate funds, according to Matt Whitby, Knight Frank head of research for Australia.

Whitby noted that the inability of investors to withdraw money from these commercial funds is more likely to be an issue for the banking sector. Some local property executives even found fault in the structure of British funds, which leads to difficulty in assuring daily liquidity.

What’s more, Whitby predicted that Australia may find itself in an advantageous position, as investment flows from Asia into Europe and the U.K. may come to a pause in light of the situation.

Domestic Funds

As the current British property market still elicits investment concerns, Real IS sees more opportunities in Australia than in Europe by launching a property fund targeting Brisbane, Melbourne, and Sydney, IPE Real Estate reported.

The German company’s fund will contain retail, logistics and office properties, offering institutional investors with a sort of safe haven from decreasing returns in the U.S. and in Europe.