Many investors automatically think ‘residential’ when considering property as an asset class but, with residential property markets at risk of overheating, now may not be the right time to invest in this area, Mr Banting says.
“Trustees who wish to include property exposure in their investment portfolios would do well to consider commercial property.
“Investors may believe that commercial property isn’t suitable for a SMSF because of the size of investment required, the possible lack of liquidity and the difficulties in managing a commercial property, as opposed to a residential property,” Mr Banting says.
However, these concerns can be overcome by taking advantage of pooled investment vehicles such as listed and unlisted property trusts.
“These trusts may be an option for smaller investors looking to diversify their SMSF portfolio into the commercial property space. Both are managed by professional fund managers who invest and manage a portfolio of properties using the pooled capital.
“Other benefits of investing in commercial property through a managed fund include diversity, regular valuations, smaller capital requirement for buy-in, potentially greater liquidity through regular withdrawal facilities, and a stable income from a diversified tenancy base,” Mr Banting says.
Unlisted non-residential properties in Australia have in the past consistently achieved investment yields of around seven percent over the past two years, providing stable and regular returns for investors; at a time when other asset classes have faced headwinds such as falling interest rates and weakness in the sharemarket.
“Unlike listed property funds, unlisted funds are not subject to the share market volatility that listed funds have experienced in recent years; exhibiting performance in line with the underlining investment properties.” says Mr Banting.
Chris Smith, head of healthcare and retirement property at Australian Unity Investments agrees and says the healthcare property sector is a great example of this.
“The healthcare property sector has been less volatile than other commercial property sectors over the past few years, and has outperformed all property on a one, three and five year basis, driven primarily by strong income returns.*
“Healthcare properties are different because they are relatively scarce, operate in a regulated industry and are typically leased to large, stable and well-resourced operators,”
“The ageing Australian population and increasing need for healthcare services ensures high occupancy levels and contributes to higher income yields.”
*Source: IPD index, December 2013
For more information please contact:
Head of Portfolio Management, Australian Unity Real Estate Investment
Ph: 03 86824566