We are experts, with decades of experience working with our high net worth clients in real estate investment. Real estate is one of the safest places to put your money. It never goes completely bust like a business can. Its growth of rental income and property value is driven by population growth, inflation and increasing affluence.
There are only a couple of ways to invest in property in Australia.
1. Real Estate Investment Trusts (REITs)
A Real Estate Investment Trust is a portfolio of property assets listed on the Australian Stock Exchange.
You own units in the REIT, in the same way as shareholders own shares in a company. REITs are not required to pay any income tax, provided they fully distribute all their annual income to unitholder.
REITs unit prices will fluctuate on the stockmarket, but generally their prices are stable and reflect the underlying value of their assets. REITs invest in major shopping centres, office buildings and industrial parks.
Their income comes from rents and their capital growth from the increase in value of their property portfolio. REITs provide an income return of around 6.0%. Capital and income growth is in addition to that. REITs have immediate liquidity if you wish to sell. A major advantage is you only need to sell sufficient units for the money you require, not the whole property as is the case with directly owned real estate.
2. Direct Property Investment: Residential
This has been traditionally the most popular way for all investors. However, there are high entry costs, taxes and stamp duties, especially since 2017. Banks also reduced their lending ratio and increased conditions and qualifying criteria have meant many investors have started to look into other types of property investments in Australia.
Direct property investment in homes and apartments provide a net rental income yield of around 2%-3.0%, after taking out the costs. Government stamp duty taxes on the purchase price range up to 6%, and double that for non-Australian citizen buyers. It is also an investment that requires monitoring and management.
2. Direct Property Investment: Commercial
This asset class is often overlooked.
Much has been written about Australian residential property investment but the area of non-residential property (commercial property) is relatively unknown to many property investors.
Wealthy property investors remain focused on yield in a pervasively low interest rate environment. As a result, assets such as commercial property are attracting their attention.
This asset class typically offers a stable, tax-effective net income stream of between 4% and 8% cent a year. Commercial property is not as well-known as residential.
Which is best? REITs or direct property? All property is driven by population growth, rising levels of wealth, inflation and the supply of the particular type of real estate be it homes, apartments, shopping centres, offices, etc.
Some investors like to see the actual property and land they own.
This is possible with homes and apartments, however it comes at a big cost in terms of government taxes, and a much lower income yield of 2.0%, versus REITs 5.5%, and commercial property at 4%-8% net.
3. In-direct Property Investment: Joint-ventures and syndication
This has rarely been offered to the smaller investor who seeks to share in the upside of development profits, without the hassle of day to day monitoring. Syndication and property development have long been the preserve of the major investment houses, superannuation funds, property funds and insurance companies and the like.
But there is a "sweet spot" in the market especially in commercial development in the $10-$40 million price range. Too large for most private investors to undertake, and too small for the major institutions to be interested.
It is this segment that Aurient Investment Partners has focused. Please visit our opportunities section if this is of interest.
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