Whether you’re a seasoned investor looking for a new opportunity, or you’re after other ways to get your foot on the property ladder, a commercial property investment may be worth considering.

In this article, we explore the reasons why people venture into commercial property investing, and some of the areas to be aware of. And if you do decide to go down the commercial route, we can hook you up with an investment loan that suits your situation and objectives!

What is commercial property?

“Commercial property” tends to conjure up images of dusty industrial warehouses, but it’s a general term that covers all kinds of property that isn’t residential, or is used for some kind of business purpose. That includes everything from offices and retail outlets, to industrial sites and doctor’s surgeries. It can even include car parks!

The benefits of investing in commercial property

Attractive yields

If your focus is on generating income from rents, investing in commercial property may be the way to go. Commercial properties typically return a much higher rental yield than residential properties – usually upwards of 7% return. In comparison, the average residential rental yield across Australia’s capital cities fell to 3.2% in February 2017. (Rental yield percentages are calculated on the amount of rent compared to the cost of the property).

Additionally, the costs of owning and managing a commercial property are usually lower, because most of these costs are covered by the tenant.

Potential to target growth areas

Commercial property investment often provides the opportunity to capitalise on growth areas, both in terms of location and the business economy. For example, a recent report by Deloitte identified that our future business economy is likely to expand rapidly in the areas of communications technology, hospitals and a wide variety of other health industries, food processing, private schooling and education. Hospitality and tourism are other areas that traditionally enjoy steady growth.

What to watch when investing in commercial property

Potentially lower rates of capital growth

While commercial property often provides more attractive rental yields than residential property, the capital growth potential is often not as strong because the land value of commercial premises is usually not as high. This is not always the case, so if you do your research carefully, you may be able to locate a commercial property investment in a growth location. Often it’s the popular shopping and holiday destinations that provide good capital growth potential for commercial property purchases, but these locations can be expensive and difficult to secure, so do your homework.

Associated costs

Goods and services tax (GST) applies when you buy a commercial property, so you need to factor in an extra 10% of the purchase price when you buy. Often investors have to pay more stamp duty for commercial properties than residential properties, too. Properties used in the running of a business are also subject to capital gains tax when you sell.

Additionally, some lenders require a higher deposit for a commercial property investment – 30% instead of the usual 20% recommended for a residential property purchase. But this requirement differs from lender to lender and often depends on the value of the property you want to purchase. To find out more about how much deposit you may require, call us for a chat and we’ll be happy to help you crunch the numbers.

How we can help

If you decide to invest in commercial property, it’s important to have professional advice from your mortgage and finance broker and check with your accountant about the tax implications before you begin. We’re here to help you structure your loan the right way and do all the legwork to help you obtain finance to suit your current financial circumstances and future goals. There’s so much more to know and understand if you’re interested in buying a commercial property, so please get in touch today!Why invest in commercial property?

It’s been an interesting month for the housing market, with most capital cities experiencing softer growth in April than in the first three months of 2017.

Hobart is leading the way as the strongest housing market, with home values increasing 5.1% over the past three months. In Melbourne and Sydney home value growth slowed in April, but the upside is that this may bring some relief on the horizon for first home buyers!

The Federal Budget was released on Tuesday this week, introducing changes which may affect property prices and buying conditions. Of late, the news has also been dominated by discussions that may impact property buyers and owners – such as the housing affordability debate, negative gearing, capital gains tax discounts, interest-only lending, borrowing through Self-Managed Super Funds and proposed changes to first-home-buyer grants and stamp duty. Please call us if you have any concerns or questions about how any of these points they may affect you, we’re here to help!

Interest Rate News

This month, the Reserve Bank of Australia (RBA) decided to keep the official cash rate on hold at 1.5 per cent. Meanwhile, some lenders have raised their interest rates marginally on both owner-occupier and investment loans outside of RBA movements in recent months.

The Australian Prudential Regulation Authority has introduced new caps on lending for interest-only home loans, which may make them more difficult to obtain for some property investors. But there are still plenty of lenders prepared to give interest-only loans to solid borrowers.

Property Market News

Auction activity has picked up, following the Easter lull. The last week of April saw high clearance rates of 79% in Victoria, with 1335 scheduled auctions, and 75% in New South Wales from 1007 scheduled auctions. The Northern Territory had a 100% clearance rate, but there were only four scheduled auctions. The ACT had a clearance rate of 68% for 62 scheduled auctions, while Tasmania’s clearance rate was 67% for 10 scheduled auctions. The clearance rates were lower for South Australia (65%), Western Australia (50%) and Queensland (45%).

Home values only increased by 0.1% across the combined capital cities in April – the lowest month-on-month rise since December, 2015. Home value growth cooled in both Sydney (0% growth in home values for the month) and Melbourne (0.5% growth over the month). In contrast, Hobart’s home values grew 1%, while Adelaide’s increased 0.8% and Brisbane’s rose by 0.6%. Darwin’s property values rose by 0.5% in April, while Perth’s and Canberra’s fell 1% and 2.8% respectively.

If you’re considering refinancing, purchasing your first home, your next home, an investment property, commercial property, or even a car at the end-of-financial-year sales, we can organise the right finance for your individual needs and financial goals. Set yourself up for a bright financial future by speaking to us about your options today!

Welcome to our May Newsletter


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