UBS AG in Tie-Up with Grocon


According to a report in Bloomberg, UBS AG (UBS), Switzerland’s banking giant, is venturing into the Australian real estate market. The bank entered into a partnership with Grocon Pty Ltd., Australia's largest privately owned development, construction and funds management company. UBS AG plans to invest around $9 billion (A$10 billion) over the next five years through the joint venture (:JV).

The deal is a result of investors’ growing demand for properties in Australia due to the appreciation of home prices in the country, which is yielding high profits. Given this, UBS AG plans to strengthen its foothold in real estate in the Asia-Pacific region, particularly the Australian market.

Australia occupied the third position in the most active Asia-Pacific commercial property markets for the quarter ended Sep 30, trailing Japan and China. As of Nov 30, 2013, home prices in Australia rose 8.3% since the beginning of the year.

Notably, UBS AG manages retail and industrial property worth $8 billion in Japan through a JV with Mitsubishi Corp. Further, the bank has partnered with Chinese developer Gemdale Corp. in a residential development fund.

UBS AG’s asset management business and Melbourne-based Grocon plan to invest in high-quality office buildings, residential property and other higher-yielding real estate classes. Based on investors’ demand, UBS Grocon Real Estate JV will deploy capital toward Grocon’s current and planned projects worth A$2 billion as well as other developments.

UBS AG’s huge investment centers on the turnaround in the Australia real estate market.  In the present scenario, investing in Australian properties would yield higher returns in the long term. Moreover, with the deal with Grocon, UBS AG will succeed in providing top quality assets to both domestic and international clients.

The bank has been grappling with a weakening investment banking business with its performance registering a sharp decline over the past few quarters. The stressed environment and stricter capital norms have compelled UBS AG to optimize its business and come forward with profitable decisions. Currently, UBS AG carries a Zacks Rank #4 (Sell).

However, some better-ranked foreign banks include Grupo Financiero Galicia S.A. (GGAL), HDFC Bank Ltd. (HDB) and BBVA Banco Franc (BFR). While Grupo Financiero Galicia and HDFC Bank carry a Zacks Rank #1 (Strong Buy), BBVA Banco has a Zacks Rank #2 (Buy).

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