For many getting a foot on the property ladder is about buying that first residential asset, but when it comes to the return they are looking for from their investment, commercial property may be a better fit.
While investing in residential property has a familiarity that many investors may feel comfortable with returns from industrial, office or retail property investments may come in a more suitable fashion depending on the financial goals investors want to achieve, experts believe.
How would you like your return?
When it comes to property investment, AMP’s Capital Wholesale Australia Property Fund fund manager Chris Davitt, explained that people need to consider how they want to earn a return on their investment.
“If you’re thinking about property you probably want a combination of income and capital gain, and most people think about residential property first, because it’s accessible, familiar and lower lot sizes etc…” he said.
“The thing about residential property is that over the last 30 years or so, about three-quarters of the return have come in the form of capital gain.
“People have done very well out of that, but very few people are investing in residential property because they think the income returns are great, because they’re not, they’re two to three per cent … whereas commercial property is the flip.
“The long-term returns have been about 10 per cent, but you get about 75 per cent of that in the form of income… so basically inflation has come in the form of capital gains.
“If income is what you’re after it probably makes more sense to have a think about commercial property as opposed to residential.”
Charter Hall, Head of Direct Property, Richard Stacker, echoed Davitt’s views on the income returns available through commercial property.
“You’re not relying on a lot of capital growth to achieve the return you want out of an asset, compared to other asset classes like equities,” he said.
“We know capital growth is obviously less certain than if you’ve got long-term leases to tenants — you know that that income will come in.”