- 51% of Australian household wealth is tied up in property
- AltX warns investors that hidden costs can chew away yields
- Private real estate debt is an alternative to investing directly into a property
Real estate has long been a permanent fixture among Australian investors, particularly as the property boom stokes investment interest.
Data from the Australian Bureau of Statistics (ABS) indicated that 51% of household wealth in Australia is comprised of property, with no signs of decreasing on the horizon.
Despite its popularity as an asset class, alternative investment platform AltX is warning investors not to ignore the hidden costs of real estate that could be chipping away at yields.
Weighing up the cost of buying
Purchasing an investment property incurs numerous costs that AltX warned can damage investors’ potential returns if not carefully considered.
In the purchase or sale of an investment property, several buying and selling costs must be considered: stamp duty, conveyancing fees, agent fees and inspections, among others. Other monetary costs include possible capital gains tax, ongoing fees for property management, maintenance and repairs, strata fees and landlord insurance.
AltX said investors should also be mindful of the non-monetary costs of buying and selling, including your time spent conducting research, doing your due diligence and dealing with finance and settlement.
Unreliability of tenants can also be a major issue for investors as an untenanted investment property becomes a financial burden.
Although a large and diverse property portfolio can provide security with numerous income streams, this carries its own risks, as investors experienced throughout the high-vacancy and low-rent periods of the pandemic.
Low rental yields and rising prices
Gross rental yield reached an all-time national low of 3.32% in September 2021, with Melbourne and Sydney suffering disproportionately and falling to 2.8% and 2.5% respectively.
The steep decline in gross rental yield is likely attributable to ongoing border closures and migration restrictions, showcasing the risks of property investment in the modern age.
Inflating property prices also pose threat to the yields, particularly as the relationship between the two is inverse.
AltX cautioned investors that combining the low yields with the already hefty costs of investing in real estate may leave investors down on their luck.
Real estate investment alternatives
One alternative to investing directly into a property is investing in private real estate debt, whereby an individual can add property to their investment portfolio without directly owning a property.
Returns are paid in the form of interest, removing the traditional hardships of property investment such as juggling vacancy rates and unreliable tenants.
A slew of different funds are also available, both listed on the Australian Stock Exchange (ASX) and unlisted, with some companies even offering specific unlisted funds targeted directly at mom and dad investors.
Centuria is one such company with offerings directed towards the market. In mid-2021 the company acquired industrial properties for its Centuria Diversified Property Fund (CDPF).
“There is strong appetite from retail investors to secure quality industrial logistics assets that deliver compelling yields, especially in this low interest rate environment.”
Jason Huljich, Centuria Joint CEO
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Disclaimer: This article contains general information and should at no time be considered financial advice to the reader. The reader should always verify their situation with their financial advisors before taken any further steps.
