L-R: Damian Graham and Colin Tate. Photo: Simon Hoyle

Chief investment officer of the $175 billion Aware Super, Damian Graham, said the government may have significantly underestimated the capital needed to reach its 1.2 million new homes by 2029 target. The federal budget put forward a $11 billion boost to housing this week, but Graham said the real cost may be closer to “hundreds of billions”.  

The package was announced in addition to existing government commitments including the $10 billion Housing Australia Future Fund (HAFF) backed by Cbus, CareSuper, Hostplus, REST and IFM Investors.  

“Our numbers say it’s a lot more than $11 billion [to build 1.2 million homes],” Graham said at the Investment Magazine Fiduciary Investors Symposium. 

 “I mean, we’ve built 2000 [homes] for $2.3 billion. 

“It’s a very big number [needed to achieve the target]; hundreds of billions is our back-of-the-envelope [calculation]. 

“I think what’s happened with HAFF and those initiatives to drive funding for CHP [community housing providers] and additional affordable and social housing is positive, so they’re [the government] certainly trying.  

“I don’t know whether it’s going to be the crowding-in that they talk about. I was interested to see that they’ve affirmed the tax benefit to offshore investors, which I just think if they’re trying to attract domestic capital into this market, [that’s what] they should be focused on.” 

Since the beginning of 2024, the fund’s subsidiary Aware Real Estate (which has a residential portfolio that will grow to more than 1200 apartments in coming years) has already launched three housing developments in Sydney and Melbourne.  

The fund has had a built-to-rent strategy for several years now, and Graham said it is still an underdeveloped market. 

“Demographically, we thought that there was a likely outcome that we would see more renters than buyers over time. 

“[Establishing Aware Real Estate] is us trying to own more of the value chain to get a reasonable return out of it. Because again, it’s not high running yield assets. You need to be able to embed more of the value chain in your portfolio to generate a decent return.  

“We have a return hurdle of CPI plus five [per cent] in our property, and we always use that as a starting point to try and ensure we can get risk-adjusted returns for members.” 

Getting out in time

With the benefit of hindsight, many asset owners would have followed Aware’s footsteps in significantly selling down commercial real estate before the sector really started to hurt performance. The fund managed to ditch $3.2 billion in office and retail assets in the past eight years, according to the AFR. 

For offices in particular, Graham said the fund has sold its investments in the US, but it still holds some Australian assets. 

“I just think it’s a really bifurcated market,” he said. 

“We couldn’t find property in UK – that was hard to find in London. But I think if you’ve got less than premium and less than A-grade property, I think you’re going to struggle a bit, particularly in the US, it’s my sense.” 

Executives and senior investment professionals heard earlier in the symposium that funds have grown weary about the political agenda around superannuation ahead of the election, and a major part of it is how retirement savings can be used to promote more affordable housing.  

As the Coalition pushes for a policy that will allow Australians to withdraw up to $100,000 or $150,000 of their super to pay for their first home, industry super body Super Members Council has shown via modelling that the measure will push up house prices and put a hole in the federal budget. 

Graham echoed the sentiment around property prices and said Aware believes keeping the savings in super is more advantageous from a “wealth appreciation” perspective.  

“When we had the COVID access payments, … the external analysis suggests that there was a lot of money drawn out of super that didn’t necessarily go to cost-of-living support. It went to consumption,” he said. 

“So we need to be cautious around whether it’s all used for the best purposes and for value adding for members in their retirement.” 

In other asset classes, Aware Super also has venture capital allocation and owns stakes in Australian tech darling Canva via investment manager Blackbird. The super fund was returned some capital last year as Blackbird sold down its shares, but Graham said Aware still holds most of its investments in Canva.  

“Value for money has been good,” Graham said of the investment. Although he conceded that the fund has become too large to consider smaller opportunities. 

“Occasionally, you do get a very small investment idea come to you, and it’s $3 million, $5 million, $10 million or even $20 million, and the governance to own that, in a direct fashion particularly, is just not time well spent,” he said. 

“[Canva] went from very small investment to our biggest investment at a point in time, that’s been a fantastic outcome, but pretty unusual in the scheme of things.” 

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