It’s been a rough start to 2016 with financial markets feeling the heat. Are we heading for an extended bear market – and how will this affect Australian property investors? Having launched our Islamic Property Fund in February 2013, Crescent Wealth delves into the state of investment markets providing unique insight into how property might be shaped over the next year.  

Investors remain worried over slowing growth in China. Huge increases in oil supply have resulted in a significant price drop, sending commodities along with Australian, European and US indexes tumbling.

Australia is particularly dependent on China’s economic performance as most of the commodities driving our economy are sold to China.

Some experts say that carnage in China’s share markets at the start of the year could have a longer-lasting impact on the demand for Australian property. Such volatility could drive capital out of China and into safer assets in Australia, particularly property.

However this time around there are regulatory uncertainties which have people guessing Beijing might clamp down harder on the flight of capital, limiting the ability of the Chinese to buy property overseas.

Looking locally, we’re seeing quite a bit of red in Australian share markets. The latest Dick Smith receivership saga only underlines that fact. Yet the current share market instability will have a lot of investors looking for a safer and less volatile investment. Commercial and residential real estate markets may benefit from such a move.

 

Commercial or residential property?

For most of us, a residential property investment is fairly straightforward and easy to understand, whereas commercial real estate is unfamiliar territory.

Commercial property is classified as assets that are primarily used for business purpose (office, retail and industrial).

As with most investment property, the capital growth potential of commercial property depends on its size, location and rental demand. In this respect, commercial and residential property investments are very similar.

However, commercial property is usually more influenced by the economy. Demand for commercial property assets will be determined by factors such as consumer confidence, unemployment, economic growth, interest rates and so on. Therefore while certain individuals will have the means to invest and monitor these sort of sophisticated assets, for most of us it becomes a case of investing through Managed Funds which have taken off in Australia.

Managed funds allow you to pool your money together with other investors so that you can invest in a range of assets that may otherwise be out of your reach. Some focus on a particular asset class, such as commercial property – allowing access without the headaches of real estate agents, stamp duty, mortgage insurance, or really large bank loans.

Recommended for investors who have a long term investment mindset, they provide diversification, liquidity to redeem your funds easily, and access to high quality assets and professional fund managers with a relatively small amount of cash.

 

Our Experience

Whether you’re a Mum or Dad looking for a place to park excess funds, an individual looking for the next growth opportunity, or an SMSF holder seeking quality investment options – the Crescent Diversified Property Fund is a popular option.

Investing in a strategic mix of listed property securities (such as property trusts on the stock) the Fund has been exposed to soaring commercial property prices over the last two years. We’ve seen encouraging developments in Office and Retail sectors. The Fund benefited from holding Stockland Property Trust (housing estates, industrial estates, retirement villages), GPT Group Property Trust (retail, office and logistics and business park assets). The strong specialty retail sales data helped propel the fund’s retail stocks, including Bunnings and Vicinity Group providing diversification and strong returns for investors.

The Fund’s recent purchase of a commercial office building in the Melbourne CBD, means that returns are expected to benefit from consistent rental income and capital growth in a strong office market.

Between February 2013 and December 2015, the Fund has performed exceptionally well returning 54%. If you want to look at it year on year (over 2014-15), that’s an average return of 18.5%.

 

The year ahead

We expect some of the same fundamental drivers to continue propelling growth in 2016.

The appeal of the inner city areas over the last decade and more has transformed real estate markets. There is little evidence this trend is not set to continue into 2016 and beyond.

While conditions may temper a little compared with 2015, we’re expecting a far more normalised return environment in 2016 where the yield will make up most of the total return, as it traditionally has.

Here’s to an exciting year ahead!

 

If you would like to learn more about our Property Investing Strategy for 2016 then speak to Crescent Wealth Investor Services by calling 02 9696 9844 or emailing 

info@crescentwealth.com.au

 

Important Notice: This article is not a financial advice and provides information only. Crescent Wealth does not guarantee the performance of any of its investment funds.