Is Australia The New Frontier For Frasers Centrepoint Ltd?

Frasers Centrepoint Ltd (SGX: TQ5) announced earlier today that its Australia division, Frasers Property Australia, had just bagged new development projects that are valued over A$275 million (roughly S$275 million).

The development projects, which are in the industrial and commercial real estate sectors, are spread across most of Australia’s major cities like Sydney, Melbourne, Adelaide, and Brisbane.

Frasers Centrepoint’s media release regarding the projects contained a series of comments from Reini Otter, Executive General Manager Commercial and Industrial for Frasers Property Australia (Frasers Property). What insights can Otter share regarding Frasers Centrepoint’s prospects in Australia?

Touching base with Australian real estate

Here’s Otter describing the state of Australia’s real estate market:

“The strong performance of the housing markets in both Sydney and Melbourne over the past 12 months has helped increase demand in these cities for consumer goods, well located distribution centres and storage space. Customers working in this space are increasingly seeking facilities in shorter time frames which we have been able to deliver.”

This is positive news for Frasers Centrepoint. With a larger population and growing wealth among Australia’s residents, demand for more goods will lead to higher demand for industrial and commercial properties as well.

But, Otter went on to comment on some dangers present:

“Several trends that have been witnessed in the past year including a strong compression in yield which has led to an increase in asset prices, particularly in the core logistics markets of Western Sydney, Melbourne’s West and South East markets as well as Brisbane’s Trade Coast and the Logan Motorway corridor outside Brisbane.

The scarcity of quality assets available on the market combined with the continued aggressive acquisitions by offshore funds has seen some owners sell and capitalise on the high prices overseas buyers are willing to pay for quality locations.”

This comment is slightly more worrying. What Otter is basically saying is that there has been a strong rally in property prices in parts of Australia over the past year due to aggressive foreign buyers. In other words, there are signs of speculative froth in the real estate market at the moment.

Speculative fervor could possibly be contained if there is intervention by the government, (like how Singapore’s government had put in place property cooling measures). But if it is left unchecked, prices might rise to unsustainable levels and thus lead to a collapse in the market in the future.

Foolish Summary

With Australia’s economic and population growth, there are reasons for long-term optimism for Frasers Centrepoint’s businesses in the country. But, there might be some shorter-term risks to be aware of given the speculative froth seen in the market at the moment.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns shares in Frasers Centrepoint Ltd.