Domestic property still faces challenges
The domestic property sector faces significant challenges despite capital raisings and a refocusing on more sustainable business models, according to Standard and Poor's (S&P) property report.
The broad strategy shift of debt reduction through capital raisings would provide enduring benefits for creditors and result in simpler operating models, more transparent borrowing structures and more sustainable distribution levels, the report said.
“Nevertheless, rising vacancies, declining rentals, tenant defaults and falling asset values are expected to continue to pressure earnings for the Australian property sector, as well as constrain capital flows,” said S&P analyst Paul Draffin.
The outlook for smaller players in the property market is going to continue to be challenging, with access to increasingly scarce capital being a primary concern, the report said.
S&P expects further property valuations in the current market cycle, while the risk premium between secondary and premium assets is expected to increase, reversing the contraction that occurred during the liquidity boom, the report said.
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