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 two 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, which of course they do.
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 growth is on top of that.
Buying a REIT is extremely cheap, only 0.1% of the amount invested ($1,000 on a $1 million investment).
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
Direct property investment in homes and apartments provide a net rental income yield of around 2.0%.
Government stamp duty on the purchase price is up to 6%, versus REITs 0.1%.
Direct property also requires management.
3. 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%.
Homes have historically provided the best capital gains. However, the average price of a Melbourne apartment has been static for a decade.
REITs have shown steady capital gains and income growth over the years.