Winston's Weekly: US Federal Reserve's policy impact on Australian property sector





Note: This transcript has been AI generated.

Paul Sanger: We're talking again today with Winston Summit, an investment manager at URI Asset Management. Winston, welcome back.

Winston Sammut: Great to be here. Thank you.

Paul Sanger: Okay, Winston, lot going on this week. Let's kick things off today by getting your thoughts and views on the news that the US Federal Reserve has flagged an end to its tightening cycle and what this might mean for Australian rates.

Winston Sammut: Well, it's been very big news for the property sector primarily, which has been under a lot of pressure over the course of the year because of the rising interest rates. And so the an environment where the US is saying there will be rate cuts scheduled for next year is being taken very positively, not just in the property market, but pretty well across the board. But property has done exceptionally well. The average sector so far this month is up 9% and we haven't seen the end of the month at this stage. So it's been a very strong month for for the rates because effectively the cost of debt has now stabilized. And I think we're going to see a very good outlook over the next 12 months for property finance.

Paul Sanger: And also you said that the Aussie rates have outperformed the broader markets and in particular highlights in there... any stars?

Winston Sammut: Well, a couple of the stocks that are fund managers that they they have, they hold a property for a number of clients, a charter hall and Centurion have done exceptionally well. Charter Hall was up nearly 11 and a half per cent yesterday and it's up a little bit again today. And that's primarily because the view is that there'll be more fund flows into the vehicles in the coming years. And and so that's been seen as a positive step because they're going to get management fees as a result of that, additional management fees.

Paul Sanger: And have there been any sort of significant transactions in the property sector this week?

Winston Sammut: There haven't been any transactions. I think this is an area that needs to be sort of resolved because one of the issues over the course of the year is very much one that we haven't seen a lot of transactional activity, particularly in the office space, because the buyers have been sitting at on one level in terms of what they want and the sellers are down at much lower. Now that we've seen interest rate, we're going to see interest rates stabilize. We are hopeful of seeing some transactions take place over the course of the next six months, which is going to be a good read, give everybody a good read for valuations. Having said that, a number of rates have come out with their valuations as yet the 30th, the end of December, the 51st of December, and that's showing some downward trend in valuations. Cap rates have sort of gone up somewhere between 15 to 25 basis points, but I think that was pretty well anticipated. So it's not as if it's a surprise and that may well be and that's how investors are seeing things as the end of the cap rate debacle that we've seen over the last 12 months.

Paul Sanger: Yeah, And I hear look, you talked about some of the companies that outperformed anything like that, but still a little bit slow at the starting blocks this week.

Winston Sammut: Okay. What's actually been outperforming have been the largest rate stocks. Yeah, and primarily because that's where most of the bigger investors the equity funds are in. And we haven't seen that translated across the board in the smaller entities. But I would suspect that as the largest stocks get more expensive in a relative sense, that they'll start moving up some of the smaller stocks. So I think the whole sector will move up over the course of the next year.

Paul Sanger: Now, we're only a week away from Christmas, Winston. Let's look at your thoughts on how you think the property sector will perform in early 2024.

Winston Sammut: Well, I think it's one of those sectors that is going to do well because it's been very much downtrodden over the last couple of years, particularly over the last six months or so. And so I think it's got a good base to start with. But again, you're going to have to see transactions come through. Quality is going to be quality, assets are going to be remain quite, quite well sought after. And industrial is still a reasonably in demand. It's the office area, the office property sector that's going to be hopefully a beneficiary of these these lower rates going forward. But I think that'll take a little bit of time.

Paul Sanger: Winston, many thanks for your time today. Always a pleasure.

Winston Sammut: It's a pleasure. Thanks very much. Thanks for having me.

Paul Sanger: We would say that's our last show for 2023. Winston will be back on our weekly show in mid January. Look forward to seeing everybody then. Take care. Merry Christmas.

Winston Sammut: Merry Christmas.

Disclaimer: Sequoia Financial Group (ASX:SEQ), the parent company of Finance News Network, owns a 20% interest in Euree Asset Management.


Name Paul Sanger