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Investors at home with property

Driving down St Georges Terrace, have you ever wondered who owns all the buildings? Perth’s CBD has 1,274,000 square metres of active office space housed in 186 buildings.

The answer may surprise many, because it is you and me – the public – who own almost half of these buildings.

The state and federal governments own around 13 per cent by area and institutions, banks and property trusts, which we all own through our savings and superannuation, own a further 31 per cent by area. This includes all of the four premium buildings – Central Park, QV1, Exchange Plaza and the BankWest Tower.

Similarly, have you been shopping in one of Perth’s nine regional shopping centres of late – Garden City Booragoon, Karrinyup Shopping Centre, Westfield Galleria, Bel-mont Forum, Midland Gate, Mirrabooka Square, Rockingham City, Westfield Carou-sel or Whitford City?

In total, these centres have in excess of seventy million visitors each year. That means, on average, every person in Perth visits them 54 times per year and they spend over $1.8 billion in them annually. This is around 13 per cent of every dollar spent on retail shopping.

The total area under cover is around 448,000 square metres. Once again, it is the public who own them, with institutions and property trusts owning all but two of the nine regional centres.

Interestingly, WA shopping centres have been one of the strongest performing asset classes over the last fifteen years, outperforming Australian retail property, Australian office property, Australian industrial property and even the share market. It seems our money has been well invested.

A recent study by the Property Council of Australia shows that Australians hold over twenty-four million investment accounts with a stake in property.

Allowing for multiple accounts per investor, it’s estimated that over nine million Australians own a share of investment grade property. On average, two out of every three adults has an interest in property with a holding of over $8,000.

Such a broad spread of investment

property ownership is the result of almost universal access to superannuation in Australia, the increasing popularity of investment in listed and unlisted property trusts and more traditional investment through life insurance policies.

The rapid growth in superannuation is seeing more and more money looking for a home in property assets. The Property Council’s study found that the volume of funds invested in property grew by 36 per cent over three years to June 1998.

Is property a good investment? The Property Council study showed that property investments in recent years have yielded consistently attractive returns – better than fixed term deposits and without the volatility and risk of shares.

Property investments are an effective hedge against inflation – protecting the savings of Australians for their retirement years and lessening the call on welfare payments.

Of course, investments in property trusts and superannuation funds are not the only investment Australians have in property. Residential property remains one of the most popular forms of investment in Australia, and why not?

ABS figures show that for the ten years to June 1998 Perth established housing showed a compound annual capital growth rate of 6 per cent. As an added bonus, capital gains tax is not payable where the property is the principal place of residence of the owner.

Investment in superannuation is not only being placed into large funds. More and more people are managing their own superannuation funds, allowing them to make direct property investments.

We are seeing the effects of this with strong demand for securely-let property in the range of $500,000 to $2,000,000. One example is the high demand and tight yields paid for fast food outlets over the past few years.

In industrial property, we are seeing strong demand from small to medium sized businesses to owner-occupy property.

Many of these businesses have previously been renting property but low interest rates have encouraged them to purchase the property they occupy. In many cases this has resulted in new premises being built.

When you consider that industrial property generally returns a net return to investors of 9.5 per cent to 11 per cent, it makes a lot of sense for businesses to pay an interest rate of around 7.5 per cent rather than provide an investor with a return.

Many people are also placing their business premises into their privately managed superannuation funds.

So for all those people that think property investment is only for the rich and famous, think again. The ultimate owner of investment property is almost every Australian.

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