A volatile share market, low returns on cash and the combination of high prices and low yields for residential property have resulted in SMSFs turning to commercial real estate in droves, a new report has found.
This insight was highlighted in Raine & Horne’s “Commercial Insights Autumn 2018” report, a comprehensive look at commercial property markets in Sydney’s central business district (CBD) and across Australia.
According to Raine & Horne Group executive chairman Angus Raine, the SMSF trend is further supported by the escalation in SMSF numbers, with an average of 34,000 new SMSFs being established each year, according to ATO data.
“Commercial property is increasingly recognised as a highly desirable asset delivering strong capital growth, healthy yields, long-term leases and low maintenance costs, all of which is extremely appealing to SMSF trustees,” Raine said.
The report said Sydney CBD commercial property values are expected to rise by as much as 10 per cent over the year ahead.
It said the commercial property market is being driven by low commercial lending rates, demand from super funds and concerns about share market volatility.
Further, small-to-medium enterprises (SME) are finding it cheaper to own rather than lease their premises.
Raine said continued low interest rates are making commercial property more cost-effective for SMEs.
“The commercial asset is often held within the proprietor’s SMSF, providing a win-win for all parties – security of tenure for the business and a strong level of control over super fund returns,” he noted.
Overall, the CBD market is characterised by historically low interest rates and high rents, which are pushing owner-occupiers to buy their premises, often using tax-effective vehicles such as SMSFs, the report said.