Interest returns to property

BRICKS and mortar are winning the battle for investors' cash, beating out the volatile sharemarket and the accompanying doom about the global economies.

BRICKS and mortar are winning the battle for investors' cash, beating out the volatile sharemarket and the accompanying doom about the global economies.

While the floodgates have not exactly opened, the flow of cash to property is rising, thanks to lower interest rates and a thaw in lending deals from the banks.

The latest Westpac/Melbourne Institute monthly index of consumer confidence shows that property has made a comeback. In the latest survey concerning the wisest places to put new savings, 25 per cent of respondents said "real estate", up sharply from a little more than 18 per cent in the preceding quarter's survey.

The chief economist at CommSec, Craig James, said the real value in the Westpac/Melbourne Institute monthly index of consumer confidence was the question about the wisest place to put new savings. "No doubt the fact that interest rates are coming down, immigration is rising and new building remains weak were all aspects causing respondents to nominate property as one of the wisest places for new funds.

"In other words, demand is expected to rise but the supply of homes is not expected to keep pace, so prices are expected to rise. And the logic is entirely reasonable.

"The positive views on property purchases represent good news for the beleaguered housing market. Hopefully consumers will follow through on expectations."

Mr James said that while the Reserve Bank would be worried about consumer gloom on the outlook for their finances, rate cuts must stay on the table.

The director, investment services, at Colliers International, Harry Bui, agreed that the continued uncertainty with the sharemarket, together with lower yields available from more traditional investments and the relatively poor performance of multitenant retail, had led investors back to the more predictable cash flow and returns associated with net-lease property.

"Lenders and fund managers have responded accordingly," Mr Bui said.

He said that as a result some superannuation funds and individuals were paying cash and financing after the close of a sale. "Some of the buyers say they are negotiating 50 per cent to 60 per cent loan-to-values with 20- to 25-year amortisations and five- to 10-year terms depending on the tenant and term of the lease.

"The investment A-grade credit with long-term leases can still get up to 70 per cent loan-to-values and have a positive spread between the low interest rates and the yield on the real estate some are using lines of credit with plans to refinance later."

Wealthy individuals are following suit but are showing a preference to the strong leasing market in the less-traditional sector of fast food and convenience-based assets.

The properties include Bunnings Warehouses, petrol stations (7-Eleven, Shell, Caltex), bank chambers and selected Woolworths, Coles and IGA supermarket leases.

Recent sales have been the Commonwealth Bank in Balmain, which was sold for $5,888,000, or 6.57 per cent yield, in April and the site at 122 Bankstown City Plaza, Bankstown - leased to a 7-Eleven convenience store for a new five-year lease. And a small baker sold in June for $1.8 million, or 6 per cent net.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles