SMSF trustees are currently showing a strong demand for high-quality, long-term unlisted property and also diversifying their portfolios by choosing certain investments across a range of funds, according to a specialist property manager.
“A lot of trustees are obviously still looking for yield, but it’s difficult in the current market to find it with low term deposit rates and even net yields of residential property down about 1 per cent to 1.5 per cent depending on where you’re investing,” Centuria unlisted property funds chief executive Jason Huljich told selfmanagedsuper.
“We’re seeing a lot of money flow into both listed and unlisted property, but at the moment we’re seeing a huge increase in the unlisted side for a number of reasons, including tax-effective income averaging around 7.5 per cent.”
Huljich said despite peripheral noise in certain property markets, such as residential, trustees still saw opportunities in unlisted property investments, but were showing a strong preference for a particular type of investment.
“They’re looking at the high-quality opportunities,” he revealed.
“The last couple of funds that we’ve launched have very long-term leases to government tenants – the Scarborough House Fund in Canberra with an 8.5-year weighted average lease expiry (WALE) and we’re buying a building in Brisbane at the moment with a 9.3-year WALE.
“So if it’s a very high quality asset and have long leases to a really strong tenant, SMSF investors are quite keen to invest.
“If it’s an older asset with a short lease and there’s risk around it, they’re staying away from those sorts of investments.”
Centuria has raised about 65 per cent of its equity through SMSFs.
“When we saw the term deposit rates drop below 5 per cent, the demand for unlisted property increased dramatically and as they’ve dropped lower and lower, the interest from SMSF investors has just continued to grow – demand is extremely strong,” Huljich said.
“The average investor has about a 20 per cent to 30 per cent allocation to property in their portfolios, with some liking listed, some preferring unlisted and others taking a half-half stance.
“What we’re finding with a lot of our investors is that they like choosing the asset they’re investing in, so, for example, instead of investing into a REIT (real estate investment trust), some of our clients want to invest in a particular type of building and when the next fund opportunity comes up, they’ll decide yes or no.
“So they’re getting diversification by spreading their investments over a number of unlisted funds.
“We’ve got a great base of SMSF trustees, but we’re finding there are always new trustees coming in or calling in because this sector of the superannuation market continues to grow, so the demand is being driven by both existing and new clients.”
In April, Centuria purchased an A-grade Brisbane office for $106.25 million to form its new unlisted property offering, the Sandgate Road Fund.
The initial term of the trust is six years with a forecast distribution of 6.5 per cent in year one and 7 per cent in year two.
The purchase, combined with other acquisitions made this financial year, increased Centuria Capital’s total funds under management by $457 million to $3.8 billion.
