Competition drives u-turn on investor risk appetite

by 02 Dec 2013
Investors’ appetite for risk has done a full u-turn in the past year, with over 60% planning to take on more risk in the next 12 months.

According to a survey by Colliers International, investors in the Pacific are the least risk-averse global 64% of investors plan to take on more risk over the next 12 months. Only 2 per cent of respondents were recorded as not at all likely to take on more risk.

“This is in stark contrast to last year when the majority (70 per cent) indicated that they were not prepared to take on more risk,” said the report.

Increased competition in the housing market is driving the shift, says Colliers International head of research Nerida Conisbee.

“Last year, A-REITs were still recapitalising and syndicators weren't all that active. Privates were having trouble accessing finance. Offshore investors were very active but Australian investors were not so much. This year, Australian investors are back and there are more offshore investors. This means a lot more competition. Investors need to take more risk to access stock."

Generally this means moving into higher yielding assets, says Conisbee.

“In the case of office, this would be to B and C grade office buildings in CBDs or in buildings in smaller metro markets. In industrial it would be lower grade property. In retail, it is typically bulky goods retailing.

Basically there is a lot of competition for prime property but less for secondary. By moving up the risk curve, there is less competition.”

An easing of monetary policy has also seen the number of investors looking to use debt to leverage their purchases to 88%, with the vast majority looking to source capital locally.

More than half of investors believe credit underwriting standards have loosened in the past six months, with 44% believing the trend will continue.

While the shift in investor attitudes has been stark, it’s still early days to predict the impact this will have on the property market, says Conisbee.

“The switch has only happened this year and we are still seeing a really big gap between prime and secondary yields across all sectors. This means that yields have firmed considerably for the best properties but for lower grade property, we haven't seen much movement. It is likely that we will start to see the prime/secondary gap declining.”