Income-Producing Assets Attract SMSF Investors And Retirees, Strata Property A Focus
Demand for strata properties has surged over the past 12 months as investors seek income-producing assets, while self-managed super fund investors and retirees have maintained their prominent role in the Melbourne retail property investment market.
According to Fitzroys Director, Chris Kombi, these trends emerged prominently last year and have continued throughout the COVID-19 period.
Kombi said the 5% to 5.5% return from a commercial strata-titled investment continues to be the difference between retirees earning, for example, $50,000 to $55,000pa from a $1 million investment, compared to interest of $10,000 from equivalent funds in a savings account.
“Investors are looking for security. Interest rates have reached an historic low and are broadly expected to remain as such for the foreseeable future. Along with the volatile share market and uncertain economic outlook, this has placed more emphasis on the safe-haven status of bricks and mortar,” he said.
This has been highlighted by 5 recent sales within Lendlease’s Aurora Village in Epping for a combined $4.7 million and at an average yield of 5.4%, negotiated by Kombi and Fitzroys colleague Lewis Waddell.
Each strata asset has a long, secure lease in place with fixed annual rental increases, and sold to separate purchasers. In the latest deals, struck during the Stage 4 lockdown, 303 Harvest Home Road sold with a 10+10-year lease to Harvest Pizza and Pasta, as well as 307 Harvest Home Road with a 5+5-year lease to Aurora Butchers.
They quickly followed the sales of 301 Harvest Home Road, leased to national tenant Bottlemart on an 8+8-year deal; 305 Harvest Home Road, home to eatery Suburban Grill on a 7+7-year lease, and 309 Harvest Home Road, which has a 5+5-year lease to Aurora Groceries.
Kombi said the premium placed on security had seen SMSF investors and retirees emerge as a key sub-market seeking Melbourne retail property.
“Over the past 12 months we’ve seen a rush from investors looking to shore up their income stream. Often, it’s been retirees in their 60’s wanting to buy a property that will immediately improve their income, or it’s SMSF investors in their 50’s preparing for their retirement,” he said.
Strata properties fit this criteria well, Kombi said, and have become popular among investors, particularly those with secure leases to quality tenants, and in locations with healthy growth prospects.
“Investors are looking to maximise their returns where possible. They have recognised strata properties typically offer higher yields, as well as a number of tax benefits.
“Strata-titled properties present low land tax liabilities that don’t cut into the return and usually offer attractive depreciation benefits. Furthermore, they are easier to manage with an owners corporation overseeing maintenance, creating an ideal set-and-forget investment.”
He said strata-titled assets offered to the market have come at a range of price points, offering accessibility to the market for a number of investors.
Pelligra Plans New Beginning for Carlton Hotel
Developer Pelligra has paid around $35 million for the Rydges on Swanston hotel in Carlton, which was at the centre of the outbreak of Melbourne’s second wave of the coronavirus.
The vacant 107-room hotel is on a 1,762sqm corner site at 701 Swanston Street, opposite the University of Melbourne and overlooking Lincoln Square. Pelligra plans to transform the building into a 4.5-star hotel and conference facility.
The vendor, Adelaide-based David Horbelt had bought the property for $12 million in 2000 from Singaporean group OSIM International.
Disclosure: The weekly Fitzroys Property Wrap is for information only on transactions in the Melbourne property market. Fitzroys provides this information as a public service. We are not purporting that all sales and leases within this report were transacted by Fitzroys. Terms/Privacy © Copyright 2020 Fitzroys.