We know a challenging investment when we see one. But it’s unlikely inexperienced investors would. Here we highlight what attracts new investors to residential property, contemplate how a typical near-city apartment has performed and see where an investor’s money could perhaps be better placed.
What do investors usually invest in? Well, the goal for investors is wealth creation, so they should consider many options and factors before parting with their capital. But the average investor’s attention usually turns to two major focusses for their usual investment:
- Familiarity – Whether experienced or novice, most investors generally invest in an asset class they’re acquainted with. The two most obvious types for the average Australian would be shares and residential property. They are common investments and information on how to invest in them is easy to find
- Low-risk – There are much more risk-averse investors out there than risk-seeking ones, so the most popular investments are also usually those perceived as low-risk.
So, with the two major focusses for the average investor in mind… what do you think of this apartment?
Not too shabby. Beautiful views, prime position near Crown Casino, Perth Airport and Optus Stadium. Three bedrooms, two bathrooms and quality facilities to tempt anyone looking to invest in an apartment.
The state government specifically targeted investors during WA’s mining boom – when rents were surging in a tight property market – commonly, with similar apartments to the above. Fast forward to today and it’s worth considering how this type of investment has performed in line with the two major focusses for the average investor:
- Familiar investment? Investors who favour these common asset types should ask themselves why they prefer a familiar investment. Our research has found a typical apartment in this area has not performed compared to, say, the Investment Performance Index (which provides information on Australian investment returns over a 30-year period) – or even our own unit trusts.
Part of our job is holding the hand of our investors and creating familiarity with a high-yielding investment.
- Low-risk investment? Glossy apartments with gyms, pools and sensational views appear glamorous to the risk-averse investor. But look past the shiny exterior and you’ll discover quite a dull performer.
While the Perth residential market has achieved little for investors in the decade after the boom, off the plan apartment properties in certain suburbs have severely underperformed against the wider trend.
Index Performance – 10-Year Property Returns (all property)
Australia = 8.8% pa
10-Year Trends (apartments)
East Perth = 0.0% pa
Rivervale = 0.5% pa
Cockburn Central = -1.6% pa
North Perth = 0.9% pa
Now, if you’ve thought about investing in these types of residential assets – and you’re able to pull our axe out of your investment plans – we’d like you to consider another option…
Commercial property investment in a syndicate
Commercial property is foreign to some. But it is a successful investment to every investor who has partaken in one of our syndicates.
Around 93 per cent of our investors have reinvested with Properties & Pathways. Our average annual returns across completed syndicates is 15 per cent, and our most recently completed syndicates have produced net returns on investment between 40 and 53 per cent (within 18 months and three years, respectively).
The underwhelming performance of residential property investment has redirected many investors to commercial property investment. We think many more will turn to commercial property investment for their wealth creation, as awareness grows of commercial property outpacing the residential market.
For more information on how you can invest alongside an experienced commercial property syndicator, get in touch with Properties & Pathways.