In the first four months of 2023, demand from Chinese investors for completed apartments in Sydney and Melbourne has been greater than demand over the entire 12 month period of 2022.
Foreign investment is expected to grow more strongly in H1 2023 after China decided to open its borders in January. The Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) Investment Intentions Survey 2023 showed that the residential sector had become the most preferred sector, with Sydney and Melbourne being the top two destinations for investment in the Asia Pacific region.
- The Merricks Capital Partners Fund (the Fund) currently has 16% exposure to residential projects in Australia and New Zealand, including 4% residual stock facilities (RSF) in Melbourne and Sydney. Each loan has either presales covenants or sales schedule requirements depending on whether it is in development or completed stock. From Q1 2023 sales evidence, we’ve seen a clear trend that Chinese demand has returned to the apartment markets.
- For example, the Fund’s $14.3m RSF investment in Box Hill has seen sales velocity tracking 50% above plan with 38 lot settlements over the past 6 months, averaging sales prices at 2% above valuation. Chinese purchasers have accounted for 63% of all lot purchases.
- We expect returning overseas investment in 2023 to continue to support residential apartment demand while supply remains tight for available apartments over the next 24 months. These factors create market dislocation in the residential sector, with RSF investments having a favourable risk return profile in these conditions. We’re currently assessing +$100m of RSF opportunities in Sydney and Melbourne.
- On a separate note, Auckland, New Zealand, was again impacted by heavy rainfall on 9 May 2023, with approximately 50mm in one hour. We’ve been in contact with all New Zealand borrowers and currently have no concerns about the rainfall impact on our investments or the underlying asset security.
