Low term deposit rates and the need for better diversification are driving advisers to consider the opportunities in commercial property for SMSFs.
Charter Hall Direct Property chief executive Richard Stacker said advisers were taking a greater look into the asset class, particularly for their SMSF clients as long term yield for retirement.
“I definitely think the appetite for commercial property is increasing,” Stacker told selfmanagedsuper.
“If you look at the return of commercial property funds, which is usually around the 8 per cent mark, versus term deposits now that’s what’s partly driving it.
“I also think it’s a diversification story so you’re seeing advisers look for asset classes that aren’t as correlated to equities and commercial property is a lot less correlated to equities compared to a lot of other classes plus it doesn’t have the volatility.”
Stacker said the more sophisticated SMSF investors had included commercial property in their investment strategy.
“We find that probably 50 to 60 per cent are advised and the rest are direct but I think the direct numbers are increasingly significantly,” he said.
“Since 2010 we’ve launched a number of funds and also single property syndicates.
“About 70 per cent of our flows are coming from SMSFs and I’d say the average investment from those is close to $100,000 so they’re not small amounts.”
While commercial property had similarities to residential property, Stacker said the differences weren’t overly complicated to understand.
“The big difference is that those leases tend to run anywhere from five to 20 years and you tend to have fixed increases already built into your lease with tenants in commercial property so there’s a lot of advantage in thinking that their cash flow is going to be locked away at a certain rate for a considerable period of time,” he said.
“I think that’s how advisers need to think about it.”
In light of the recent attention ASIC has placed on property spruiking that targeted SMSFs, Stacker said those activities were not taking place within the commercial property sector due to stringent regulations.
“Most property funds come under a managed investment scheme and that’s already regulated by ASIC, so there is a lot of guidelines around commercial property if you invest through a fund,” he said.
“We have a lot of research around our products, which is normally externally researched and rated by a number of groups, and there’s regular reporting that comes out quarterly so there’s a lot of information investors can get through websites, research reports and ongoing quarterly reports to see what those investments are doing.
“If property spruiking is happening in the residential space, trustees should be looking elsewhere.”
Stacker said there was room for more education on commercial property, as SMSFs traditionally flocked to residential investments without considering the benefits of direct.
“They shouldn’t be scared of commercial property because if they take a step back, it’s something they’re [interacting with] nearly every day – retail shopping centres, offices and also industrial-type property,” he said.
“I think it’s less complicated if you start to think about it that way.”
