All property investors love a bargain, and six months ago one was spoilt for choice. Opportunities to buy a dollar of assets for 50 cents – or in some cases, 15 cents – abounded. This was a geographically widespread phenomenon, which has recently disappeared in most countries as market prices have soared and dilutive equity issues have proliferated. There is one glaring exception, and ironically in a country with very little oversupply of commercial property and a resilient economy.
Australia is the last bastion of discounts to NAV, somewhat ironically as the sector has historically traded at a big premium, unlike the UK or US where the newly arrived premia are 
an unusual phenomenon and clearly represent an increasingly bullish view on yields as rents are likely to remain pressured by material oversupply. The Australian property investor is still shell-shocked. They were sold a lemon over the last decade by the financial engineers dressing up a straightforward collection of buildings as a structured financial product, and the bursting of the bubble has left a lot of collateral damage. Some of the most beaten-up names such as Goodman and Mirvac have rallied as balance sheets have been repaired, and made a lot of money for the fund, yet the office trusts languish near recent lows despite clear signs of an improving physical market. There have been very few cranes sighted on the Sydney or Melbourne skyline this decade, and unemployment may well have peaked already. Contrast this to Dubai or the City of London where oversupply and falling demand are rampant. This is currently our only long property investment in the region.
