Individuals looking to invest in property over the next couple of years should do so to generate income as opposed to capital growth, according to a property fund manager.
Speaking at this year’s Australian Investors Association Conference held on the Gold Coast, Folkestone head of funds management Adrian Harrington told delegates: “One of the key things going forward, whether you’re doing it yourselves or using a fund manager to access property on your behalf, the next couple of years is all going to be about rolling your sleeves up and driving the income because the easy returns from capital values have happened.
“So now that the capital value growth is starting to taper off, it’s all about income, that is, how you’re managing your buildings, how you’re managing your operating costs and how you’re positioning your relationship with your tenants.”
Harrington pointed out tenancy was most critical in the current real estate environment.
“Renewing your tenant is critical in this sort of market because if you’re going to look to sell the building, people want to buy cash flow. So if you’ve got a good tenanted building with tenants on long-term leases, that’s highly, highly attractive in this market,” he said.
He noted property is currently the best asset class for investors looking for yield in their portfolios.
“Real estate, particularly in the commercial and REIT (real estate investment trust) space, is offering a better yield than equities, cash and bonds,” he said.
“Clearly your after-tax returns will be different depending on how you’re treating the deferred income from property or if you’re getting dividends out of the equities market, what your grossed up dividend is, but at the moment real estate is still offering a premium to the asset classes in terms of yield.
“It’s one of the key reasons why both domestic and international investors are still chasing property at this point in the cycle.”