Property value up

With property looming as a valuable investment, Gary Kleyn evaluates the various options.

A LOW inflationary landscape is generally not considered the ideal environment for increases in property values, however the past decade has shown that the real estate market has benefited.

While directly investing in residential property is one option, investors can also broaden their horizons by considering an investment in a property trust that gives investors, through relatively small prices, the ability to invest in large multi-million dollar properties.

Trusts also make it easier for the small player to diversify their property portfolio.

However, for those interested in direct investment, Colliers International research analyst David Cresp said he believed there were a number of options in the commercial, retail and office markets in addition to the residential market that could offer strong yields.

He said it all depended on the risks an investor was willing to take.

“Yields are looking pretty good at the moment compared to the stock market, bonds or the residential market,” Mr Cresp said.

He said that similar to all investments, the higher the yield the greater the risk. For example, properties sold with a long-term lease arrangement in place, particularly with a strong tenant such as a government agency or banks, were often sold based on a lower yield.

Yields are also tightening due to a lack of good quality investment stock and the increase in demand due to the poor performance of other investment classes.

Colliers International director of commercial and investment sales Ian Mickle said the competition to acquire prime assets had resulted in yields falling to levels that would not have been thought of even five years ago.

Mr Cresp said yields currently achieved on office buildings generally ranged from 8 per cent to 10 per cent while industrial property could vary in yields from as low as 7 per cent to more than 10 per cent.

While yields have fallen in the non-residential market, they are still stronger than those achieved on residential property.

REIWA public affairs director Lino Iacomella said gross yields based on March prices had fallen to 4.6 per cent for houses. Yields on units averaged 6 per cent.

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