Western Australia continues to outperform for direct property investment

WA providing the strongest returns for direct property.

Charter Hall says recent results from Investment Property Databank (IPD) – showing that Western Australia continued to provide the strongest returns for direct property over the year to September 2013 – reinforces the appeal of its latest property syndicate, WorkZone in Perth CBD.

Head of Charter Hall’s direct property division, Richard Stacker, said that while WA’s economy has moderated, as the mining industry begins to transition from construction to output phases, a number of factors that contributed to Perth being Australia’s strongest performing office market over the past decade still remain.

“Population growth in WA was double the national average over the past year and the current unemployment rate of 4.3% is by far the lowest of all states. It is true that WA’s employment growth has slowed since 2012 as the mining investment boom crests, however at 1.4% for the year to October 2013 it remains well above the 0.8% recorded by Australia as a whole,” Mr Stacker said.

Total returns over the year to September showed Perth’s office (11.6%) and retail (10.7%) again performed above the national benchmark for broader property of 9.0% and while September figures for Perth industrial are yet to be finalised, growth over the year to June 2013 was an exceptional 15.4%.

Tapping into the growing demand for investment opportunities in Perth CBD, Charter Hall will shortly launch a new high quality single syndicate for high net worth investors and self managed super funds (SMSFs) seeking exposure to the consistently outperforming resources state and its strong employment growth outlook.

Charter Hall’s ‘WorkZone’, which will open to investors on 1 December, aims to provide investors with sustainable and stable, tax-advantaged income and the potential for capital growth through investment in 202 Pier Street, Perth – a brand new $124.5 million A-grade office building located in close proximity to the Perth CBD. Fully leased with 100% occupancy, the property syndicate aims to deliver investors an average two year income yield of 9.11%[1].

Charter Hall, which is the number one in the unlisted retail sector with a market share of 14%[2], expects there to be continuing demand from SMSFs for investment in direct property in 2014 with SMSFs already making up 60% of their investor base.

“The SMSF sector is the fastest growing area of the Australian superannuation industry. SMSF investors have an appetite for direct investment and a desire for control and transparency. Direct property provides self-directed investors with quality assets with lower gearing, conservative payout ratios and increased transparency.

“According to Property Investment Research (PIR) over the previous three years equity raising from property syndications have grown by 100% each year, from $40 million in 2010, to a forecast $510 million in 2013.

“Over the past three and a half years, Charter Hall Direct has seen new equity flows in the unlisted retail funds it manages averaging $156 million per annum. This significant increase is further evidence that Australian direct property has become a popular home for retail investors looking for alternative investments that have a return profile which is less correlated to equity markets and other asset classes that can be vulnerable to swings in returns,” Mr Stacker said.

A checklist for investing in direct property

Mr Stacker said that those planning to invest in direct property need to be selective on the markets and property sectors they invest in.

“Investors looking to invest money into direct property need to be aware that not all direct property investments are the same. It is important to look for high quality investments with a sustainable yield that will diversify portfolios in a secure framework, rather than being lured into riskier second grade investments that may offer higher yields,” Mr Stacker said.

“There are a number of quality opportunities for investment in this space and investors are voting with their feet when it comes to allocation of funds. By understanding the factors that influence quality, investors can make the most of this attractive and growing market,” Mr Stacker concluded.

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[1] Target average income distribution for the two years to 31 March 2016, assumes participation in the limited offer.