The rental property market in Australia is worth $1 trillion [similar to the ASX] but where it’s very easy to buy a diversified portfolio of shares, it’s very difficult to get the same scale with residential property. There’s also the issue of how you manage the very high transaction costs, around collecting rents, managing leases and the like”. Atchison says his consultancy has worked with “at least a dozen groups who’ve looked at residential investment and have wanted to find a way to do it, but have been stopped by these portfolio and cost issues”. The veteran consultant also says he’s encountered the view among stakeholders at some institutions that residential property “is not really an investment but about providing individual utility”, a view they have transposed from their on personal experiences. The industry funds would seem natural backers of the NRAS, chiming as the scheme does with the funds’ generally strong support for socially responsible investment.
However head of the property group at industry fund-owned Frontier Investment Consulting, Jonathan Stagg, says the high cost leakages are not the only obstacle to direct investment in residential accommodation. “Super funds face the problem of competing for assets with private investors, who have the significant advantage of being able to negatively gear their interest repayments,” he says, pointing out this uneven playing field is less of a problem in the large commercial transactions traditionally preferred by super funds. “Also, do your members really want to be competing at an auction with their own super fund, bidding on the same property? You can imagine some pretty horrible outcomes from that scenario.” The equity alternative Direct ownership is not the only way into residential property being offered to institutions. Some institutions have stood behind the reverse mortgage or ‘equity release’ mortgage market, which in Australia now has $2.6 billion of loans outstanding, to homeowners with an average age of 74, according to Deloitte’s latest study of the market.