Are your investment goals and finances better suited to residential or commercial property investment? To answer this commonly asked question it’s important to first understand the differences between the two…

Length of leases
Commercial properties attract longer lease periods – typically three years or more rather than the 6-12 months of residential properties.

Maintenance costs
Most residential property maintenance is the responsibility of the landlord, whereas the costs of maintenance, rates and repairs on a commercial property are paid by the tenant.

Costs and returns
Commercial property offers the potential for higher rental yields, whereas residential property generally offers higher capital gains.

The net income tends to be higher for commercial property investment, in part because the tenant pays most of the property expenses.

Goods and services tax (GST) applies when you buy a commercial property, so allow an extra 10 percent on the property’s purchase price, which you may be eligible to claim back as a tax credit.
Both commercial and residential options have tax benefits such as negative gearing, depreciation and reduced capital gains tax rates.

Risk
Commercial property value can be hard to predict and demand tends to fluctuate with the business cycle, which is why it is usually regarded as a higher risk asset than residential property.

To manage this risk, lenders commonly charge higher interest rates on commercial loans, higher upfront and ongoing fees and lower loan to value ratios, which means borrowers have to come up with significant deposits.

Loan terms are typically shorter for commercial property and it is not uncommon for lenders to require regular review of the borrower’s business financials.

Tenants
It can be harder to find tenants for commercial properties, but on the flip side commercial tenants tend to pay more attention to maintaining the property as part of their business.

Both types of properties have their pros and cons so it is advisable to research well before you make your investment decision. Please give us a call for any questions we haven’t yet answered.

Share on Facebook

Despite talk of a housing price bubble, ANZ research shows there is little chance of a housing market crash this year. The bank forecasts prices to remain on hold or fall slightly, but not crash.

In its recent property market assessment, ANZ argues that gains in house prices have been driven by lower interest rates and an increase in household income.

The ANZ ‘Australian Housing Chartbook’ reports: “A combination of lower interest rates, falling house prices and rising household incomes has improved Australian house purchase affordability over the past 12 months.”

“Despite the continued concerns about significant Australian house price overvaluation from some commentators, housing market fundamentals remain supportive.”

This is backed up by ANZ compiled data on international house prices, rental yields and house price-to-income ratio comparisons – showing Australian house prices have not deviated from international trends.

HSBC Bank chief economist Paul Bloxham agrees that there is little to fear from a price bubble. In the recent HSBC global research report ‘Australia in 2012′, he states there are three main reasons why prices won’t plummet: the majority of houses can service their debt; the undersupply of housing is growing at a greater rate than the decline in population growth; and there is strong demand for housing close to major urban centres.

“We remain unconcerned about the possibility of a large decline in housing prices this year,” concludes Bloxham.

Share on Facebook