Greater restrictions on property investments within SMSFs should redirect the focus of trustees towards real estate funds that can access growth sectors across the globe, according to a local specialist fund manager.
Quay Global Investors co-founder Justin Blaess noted the ban on residential property investment via a limited recourse borrowing arrangement inside an SMSF and the negative gearing and capital gains tax changes for investments outside a fund had made it more difficult to invest in property.
However, Blaess acknowledged SMSFs still retained the ability to invest via a managed fund or exchange-traded fund into a diverse range of property, which may be a better and easier path to take in the current circumstances.
“Most SMSFs don’t get much diversification if they are buying real estate and are tied into the fortunes of that asset,” he told smstrusteenews.
“They are also generally capital expenditure heavy. The administration is heavy as well, whereas our fund invests in 25 real estate investment trusts and real estate companies around the world. They span multiple geographies and industries and what you get is diversification.
“At the same time, you don’t have to worry about maintenance as that is done in the entity. You don’t have to worry about trying to get a loan from the bank and you don’t have to worry about any administration because we take care of that for unitholders and hand over a tax statement at the end of the financial year.”
He observed, while some stocks are generating good returns, the market is currently subject to hype, while bond returns have been hit by high inflation in the past five years, but global real estate is backed by physical assets with tangible value where rent generates regular income.
As such, investors have been able to benefit from the boom in data centres and senior housing.
“Data centres are very expensive and people call them infrastructure and there is unbridled demand coming from artificial intelligence and cloud companies,” Blaess said.
“It’s the next bubble that is absolutely happening and some people can make a lot of money on data centres.
“Senior housing is driven by a huge demographic wave of the baby boomers moving into their 80s and needing to live somewhere where people can look after them.
“During COVID this was not an industry you wanted to invest any capital into so the developers stopped building senior housing.
“Now there is a flood of baby boomers and there is still zero housing being built because the development resources have pivoted to building data centres, but there is a wave of tenants clambering to get into senior housing so they are making money above the rent growth trend.
“Australia isn’t always the best investment opportunity. The real estate investment sector is small with limited choice and it’s generally more expensive than global peers.
“What you can find globally is access to asset classes you don’t get in Australia, such as senior housing. It’s far more sophisticated offshore and you can find asset classes that have got really attractive themes.”