Make a smart healthcare sector investment

Individuals who wonder about how to invest in the healthcare sector may be curious about:

• What types of investment are available (i.e. capital investment in medical research, digital health or healthcare facilities)?
• Why do people choose to invest in the healthcare industry?
• How investment in the healthcare market could benefit them?
• Is Australia’s healthcare sector a smart option for them?

We cannot tell you if buying a healthcare share or unlisted Healthcare property fund is the best outlay for your personal financial situation and this article should not be considered as providing personal advice. Only your financial adviser can help you determine whether or not this kind of investment is right for you. However, we understand that every potential investment requires due diligence. This article strives to help you make an informed and smart decision when considering an investment in the healthcare sector.

Let’s get cracking.

Healthcare property investment for diversification

People diversify their holdings through listed vehicles such as Australian healthcare real estate investment trusts (A-REITS), dividend stocks, bonds and Exchange Traded Funds (ETF) on the Australian Securities Exchange (ASX). Yet another way that individuals may benefit from backing the Australian medical field is using an unlisted healthcare property fund. An unlisted fund is not traded on the ASX.

Specialised property managers will aim to seek high-value healthcare properties across Australia, including:

Medical centres

Private hospitals

Specialised medical facilities for pathology, radiology and allied health services

Aged care facilities

Retirement villages

Diversification uses a variety of investment vehicles — stocks, bonds, ETFs and pooled investments — across several sectors to build wealth and mitigate risk. The medical field is attracting healthcare investors seeking potentially strong returns. The Australian Institute of Health and Welfare Health Expenditure Snapshot from July 2020 shows that the largest source of health sector revenues is federal government spending, contributing $86.4 billion in 2019-2020 and $56.2 billion made by state and territories. Individuals and private health insurers spent $29.8 billion and $16.7 billion, respectively, in the same period. With the market indicators pointing toward potential growth in the coming years, now could be the right time to diversify your portfolio with healthcare stocks and investments in health infrastructure.

Drivers of the healthcare sector

The healthcare property sector has performed well compared to other property sectors.

Characteristics of the Australian healthcare sector that have driven these property trends include:

• The growing and ageing population. According to the CBRE Healthcare and Social Infrastructure Team, Australia’s population is expected to double by 2075 and reach 36 million by 2050.
• Quality care and coverage is required alongside population shifts. Non-discretionary nature of healthcare expenditure limits exposure to economic downturns.
• The weighted average lease expiry (WALE) is longer, rental reviews are fixed and incentives are minimal in comparison to other real estate sectors. Stable revenue streams create potentially a more reliable rental yield.

The Australian government projects to spend $105.8 billion in 2022-2023 for medical services and benefits, pharmaceutical assistance, maintaining state hospitals, Indigenous Australian healthcare infrastructure and other healthcare services. Significant federal government proposals for improving primary health, rural medical care, digital infrastructure and research are also potential drivers of specialised property development.

Additionally, JLL estimates, “healthcare real estate is equivalent to 25% of the industrial sector and about 10% of the office sector by value.” When office and industrial property became riskier investments during the pandemic lockdowns, healthcare property increased in relative attractiveness.

The Australian healthcare sector is expected to grow at a CAGR of 3.2% during the period of 2017-2024. Healthcare revenues are forecast to grow 3.9% and industry employment growth is anticipated to be 2.4% during the same period, with strong segment performance expected from the following:

• Healthcare IT – 8.5% in CAGR from 2019 to 2025.
• Medical devices – 10% CAGR from 2017 to 2024.
• Biotech – 4.4% annual growth from 2016 to 2021.

As investors look for opportunities with potential for income and capital gains, the healthcare sector may be a good fit. A key to benefiting from a healthcare sector investment is finding fund management that understands the market and how to use this understanding to back the right segments of investment.

Healthcare property funds

The healthcare property sector in Australia is changing, and these developments could signal opportunity for specialised healthcare property fund managers and those who choose to invest in healthcare through an unlisted fund.

New property development and hubs of innovation are necessary due to recognition by the government of the need for more aged care, medical research and life sciences innovation in Australia. The push for manufacturing of rapid antigen tests in Victoria or medical technology and life science research and development needs real estate including nearby hospitals and universities in Melbourne could require significant joint investment in the underlying development of new facilities.

It’s estimated that the total market size of the health and life sciences property sector is $150 to $250 billion. Government and foreign direct investment in Australia’s healthcare sector — grew 319% from November 2010 to June 2022.

For investors who wish to diversify stocks and bonds with a healthcare property fund, there are potential benefits to investing in healthcare real estate, including:

• Longer lease terms based on the purpose (i.e., life sciences research and medicine development) of the property.
• Quality, well-funded tenants looking for multi-year leases and able to provide a dependable, long-term rental yield.
• Special purpose buildings with a potential for investment in the future that may increase capital gains.
• Real estate development underlies the future commercialisation of Australia’s life sciences and health research, which is attracting substantial private and direct foreign investment.

Investors can potentially benefit from Australia’s medical field in several ways, including participation in healthcare properties like stand-alone medical centres, clinics, R&D hubs and aged care facilities.

Centuria Capital Group (ASX:CNI) has a differentiated healthcare property portfolio based on our understanding of the market and identification of opportunities in the healthcare landscape. Thus, we are often a preferred partner for operators. To learn more about Centuria’s unlisted healthcare property funds open for investment, please register your interest online.

What questions should an investor ask about an unlisted healthcare property fund?

First, ask for the fund product disclosure statement (PDS). Examine it and related investor information online. The PDS and website should provide a wealth of information to answer your questions about the property structure and professional management experience and expertise.

We are committed to investment education because the more our clients know, the better we can meet their healthcare investment goals. Contact us about investment opportunities and Centuria Healthcare’s point of difference.

Disclaimer: All investment strategies and investments involve risk of loss. This content should not be construed as investment advice and does not constitute any offer or solicitation to offer or recommend any investment product. Centuria recommends you seek independent financial advice from a financial adviser which takes into account your personal financial goals and circumstances.

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