Property, Retirement, Strategy

SMSFs warned on retail property sector

Small and medium-sized enterprises (SME) involved in the retail sector should use extra caution about using their SMSF to buy their business premises due to concerns about falling income returns, a specialist commercial property lender has said.

ThinkTank director Per Amundsen said acquiring property for the dual purpose of using it for their business and building their retirement savings is often a “sensible strategy” for SME owners, however, for those operating in the retail sector, he advised them to “hasten slowly” before committing to buy.

“Much of the discussion in the property market in recent times has been around falling housing prices in Melbourne and Sydney, with the CoreLogic statistics again showing a 0.3 per cent fall for Sydney and a 0.6 per cent fall for Melbourne, with the national market down 2 per cent for the year to 31 August 2018,” Amundsen said.

“But perhaps a more interesting trend has been that the retail sector has lost ‘considerable ground’ in income returns over the past year, in sharp contrast to office and industrial that have continued to improve, especially in Sydney and Melbourne.”

He said according to recent MSCI data, retail total return fell 2 percentage points from 10.4 per cent, for the 12 months to June 2017, to 8.4 per cent in the corresponding period in 2018.

While large retail had a better result at 10.7 per cent for the 12 months to June 2018, it was still 1 per cent less than the MSCI All Property Index.

“More concerning was regional retail that only returned 5.6 per cent, down from 9.4 per cent in 2017, and with capital growth becoming slightly negative compared with a gain of 3.4 per cent in 2017,” Amundsen noted.

He underscored it is too soon to draw any definitive conclusions from these numbers, but warned SME retail businesses would be well advised to keep a close eye on this property sector.

“The challenges facing retail have been well aired and this must have an impact on this property sector,” he said.

“So SMEs should weigh all their options before making a property acquisition in retail as part of their retirement income strategy.”

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