Soaring gross rental yields are encouraging investors to switch, despite equities providing better long-term returns.
Soaring rental yields are encouraging some investors to switch from shares to real estate in a bid to escape the global sharemarket downturn and cash in on strong demand from tenants.
Jeremy Goldschmidt, the chief executive of RentBetter, a DIY platform for property investors seeking to cut out professional managers, says: “As rental prices go up investors are increasingly attracted to property to avoid stockmarket volatility. They are looking to property as a more stable, long-term holding.
It is also not an accurate guide to capital growth, or increase in the value of the property, which needs to be assessed on location, population growth, type of property and its amenity. A typical east coast apartment has provided a gross return of about 3.4 per cent – but after allowing for costs it fell to an average of 2.3 per cent. An investor who used negative gearing and tax offsets could have increased the return to 3.4 per cent.
A house in Perth has a gross return of around 2.2 per cent and net of 1.15 per cent, rising to about 2.2 per cent for gearing and tax offsets.CoreLogic, which monitors property markets, shows current national gross yields of about 3.3 per cent are boosted by outsize returns from mining centres in regional Northern Territory and Western Australia, which can be highly volatile.
For those seeking an income, such as retirees, yield matters more than accumulating long-term capital growth.Goldschmidt adds: “Some property investors rely too much on the idea that expenses are tax-deductible. They can boost their returns by focusing on maximising returns rather than chasing deductions.”
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