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Property Investment - Commercial or Residential?

  • Tags: Property Investment
An increasing number of Australians wanting to look after themselves in retirement are using money in a Self-Managed Super Fund (SMSF) to take out a loan for property.

This graph presents the latest published data from the Australian Taxation Office on SMSFs.

Percentage of Real Estate Assets in SMSFs vs No. of SMSFs
SMSF Graph 

Source: ATO, SMSF Statistical Report September 2015

It seems that at the end of the 2015 tax year there were about 530,000 SMSFs in Australia.
At that time approximately 16% of their assets were invested in property.

Commercial real estate always offers more net short-term return than residential real estate does. The renewed interest shown in commercial real estate probably reflects the lower returns available for fixed deposits. Most commercial leases have an automatic ratchet based either on CPI or a fixed percentage that results in annual rent increases and property appreciation.

Generally speaking the only risk area with commercial property is in the tenancy itself, so well positioned properties with good facilities should command a premium.

Residential property offers lower rental returns than commercial property but for investors in say that their 40s it offers the likelihood of more volatile rental growth moving with the market but over two or three investment cycles it may well offer a better long run return than the slow and steady commercial returns.

We are seeing more people purchasing residential properties through their superannuation funds. The increase of the number of SMSFs with a fairly consistent rate of allocation to residential real estate suggests this could be one source of growth in the Australian housing market.

These trends are important to note as they highlight the sources of demand outside of Australian wages and employment. When there are multiple sources of demand flowing into a locally supplied market, property prices could be affected by the current regulatory uncertainty around superannuation. Property Investment - Commercial or Residential?
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First National Palm Beach
15 Palm Beach Ave Palm Beach, Queensland 4221
Phone: 07 5559 9600
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