Commercial property investing has grown substantially in popularity over the last year, becoming one of the most favourable investments for Australians in 2021. Property experts Scott and Mina O’Neill take a closer look at the drivers for this spike in demand, and how you can still get into the market.
Property sales driven by cheap money
Interest rates in Australia have been at historic lows for the past two years. The flow-on effect of this has been a supercharged property market where demand has been high, assets scarce and prices and sales tripling in 2021. For sophisticated investors who understand the value of good debt, it’s almost irresponsible not to borrow while money is so cheap – and that’s exactly what they’ve done. Demand for commercial properties from our clients has been up 300 per cent in 2021, the highest increase we’ve ever seen whilst specialising in this industry, and we don’t see it letting up anytime soon.
Looking for ways to invest wealth
Heightened economic uncertainty, government-enforced lockdowns and border closures have redirected a whopping $200 billion back into Australia’s pockets this year. ‘37 per cent of Australians believe the latest round of stay-at-home orders has had a positive impact on their savings capabilities’ according to a recent survey by UBank (Source: The Canberra Times). ‘Of the more than one-third who said the pandemic had positively changed their savings habits, 45 per cent were millennials, while the next biggest cohort was generation X and then baby boomers’. Australians are looking for lucrative places to invest their newfound wealth to harness the best returns possible, and commercial property is proving the frontrunner in 2021.
Commercial real estate delivers better returns
The attractive high-yields of commercial real estate have finally become too difficult for many investors to ignore, with more and more investors choosing to leave the traditional confines of residential investing. We’re sourcing strong yields of 5.5-8 per cent in the assets we’re purchasing for our valued clients, numbers that residential just cannot compete with any longer due to record low yields and high prices.
Education
As commercial property investing becomes mainstream, information about the benefits of commercial investing is becoming more readily available. As investors understand the pros and cons of investing, they are attracted to this asset class in higher numbers. Education has demystified many of the outdated myths surrounding commercial property, empowering them with the knowledge that when you purchase a high-quality commercial asset, do your due diligence and employ a solid positively geared strategy, your commercial investment will far exceed anything you would have known in the residential world.
Lending
One huge upside of investing in Australian commercial real estate is the favourable lending conditions. Many investors cant get lending in residential but can still secure lending in commercial finance. Options such as lease doc loans allow you to get commercial finance on an asset easily. You only need a good lease and a deposit.
Tips for getting into the market
Investors looking to get a slice of the lucrative world of commercial property can still enter the market with as little as a $150K cash deposit. However this is the absolute minimum that we would advise our clients to have, and we’d much rather they had $300K in order to purchase a higher-quality asset. Remember that lending is on your side with commercial property, a huge positive, with some brokers lending up to 80% of the commercial property’s value. You can still find good assets for as little as $500,000. They don’t pop up every day but they certainly still exist if you know where to look.
