news

Property investment is 'pot luck'

By Miranda Brownlee
Gold Coins

A major stockbroking firm has raised concerns about the suitability of property investment for many self-managed super fund portfolios, describing it as a "hit and miss" investment.

CommSec has discouraged SMSFs with less than $4 million from investing in physical residential properties – likening choosing a good property investment to picking the winner in a horse race. 

Eric Blewitt, CommSec's general manager of adviser services, said that by investing in physical residential property, the average SMSF worth around $1 million is defying the rules or theories of proper portfolio diversification and exposing the fund to unnecessary risk.

Mr Blewitt said limiting the exposure of an SMSF to a property to between 10 per cent and 15 per cent would ensure the fund has sensible diversification.

“If you’re looking at an average SMSF, which has just over $1 million, and you’re looking at a 10 or 20 per cent allocation, you’re only looking at $100,000 to $200,000 worth of property,” he said.

“It’s not until you get to that $4 million to $5 million balance that you can go buy something at $500,000, or maybe up to a $1 million, and still have an allocation at a reasonable proportion.”

The performance of residential property markets in different capital cities has also been very diverse, Mr Blewitt warned.

“Looking over the past year, Sydney was around 14.5 per cent, whereas Brisbane was 2.5 per cent and PerthPerth, TAS Perth, WA was pretty much flat; so for an SMSF purchasing a property as a single asset, it is pretty much pot luck depending on where you purchased it,” he said.

“Property as far as SMSFs are concerned, specifically residential, is pretty hit and miss depending on where you happen to have purchased, and therein lies the problem with [investing] in an illiquid asset; so unless it’s only a small portion of a balanced portfolio, it’s pretty challenging."

The yields from residential property are only expected to reach around 3.5 per cent while capital growth is only expected to be around 5 per cent, he added.

“Your risk premium over and above cash isn't too much – OK, you might have some capital growth but, looking at the last year, looking at the diametrically opposed growths and reductions in the country – it’s pretty hard to pick,” he said.

“It’s a challenge because you've not only got to pick the right area, you've got to pick the right apartment or the right house. We’re coming into spring carnival season – you might as well see what horse you’re going to back.”

Read more: 

Massive increase in vacancy rates

EXCLUSIVE: The 6 week property transformation - episode 2.2

More foreign buyers in government's sights 

The 5 critical investment questions you should be asking 

Reforms wide of the mark 

Exclusive series: The 6 week property transformation episode 2 

 

Property investment is 'pot luck'
SPI logo
Thank you.

Your enquiry has been sent to a local Aussie Mortgage Broker.

We will be in contact with you shortly.
Opps.

error occurred.
Unfortunately Aussie cannot attend to your home loan related enquiry at this stage as you must be a citizen or permanent resident.
Do you need help finding the right loan for your investment?
What Aussie do for you:
  • Give expert mortgage advice to help you find great investment loan deals
  • Help you maximise return by lowering financing costs
  • Save you time and effort by helping with the paperwork
First name
Last name
Location
Mobile Number
Are you an Australian Resident?
promoted stories

Top Suburbs

Highest annual price growth - click a suburb below to view full profile data:
1.
BLUE BAY 49.18%
2.
PAMBULA 43.5%
3.
BERKELEY VALE 42.74%
4.
POINT PIPER 40.52%
5.
NORTH TURRAMURRA 38.12%