Direct Property Vs LPTs

Centro is a fantastic example as to why direct property. Buying into a LPT gives you business risk as well as property risk. Buying into direct property gives you Property risk not business risk.

Centro Retail (CER) is a trust of the retail assets. Now the value has decreased 40% today through no fault of the property ownership. By purchasing an LPT the business risk that comes with the LPT has lead the decrease of the value, and via direct property you escape those risks.

So for those that buck at the stamp duty costs and time issue just remember you have an overall lower risk in direct property...

My ramble for the day

 

yeh, today there is a firesale.. prehaps time to buy bargins!

 

I was looking at buying some SLF. Not sure what to do now. No doubt my CFS Index Property Securities fund will be down when the units update in a day or two.

 

Its also a good example of why not to buy direct and buy through SLF or similar....

Much safer

 

Having been a tradie for over a decade, I know a lot more risks with direct property than the business risks you are hilighting with Centro.

Anyone remember the Lane Cove tunnel black hole

 

funny how people have this mystical illusion that residential property is somehow risk free!

 

Do you think a piece of land in Sydney (or any large capital) could drop as much as Centro has - I highly doubt it.

 

Do you think pointing out 1 stock out of thousands represents the whole market?

I'm sure if you bought a land somewhere and then on the off 1 in a thousand chance a tip was opened next door or some other unsavory neighbour moved in then the land could drop dramatically in value.

Plus just like with land, it could take several months to sell.. would you sell land on the first offer which is 1/2 of what your expecting? No, so wait a few months till the offers for Centro raise again..

 

I couldn't agree more! If your silly enough to not diversify your investment, you are bound to have these problems. As you said, 1 share in a few thousand is not worth worrying about!

 

There are water front properties on the Central Coast that the councils have had to buy back off land owners because of rising water due to climate change.

I think those properties would have dropped in value.

Is that close enough to Sydney for another example?

How about the resturant in Surry Hills that had to be pulled down recently because of the construction site next door recently? How is that for a ripper example.

There is a Miter 10 store in Randwick. The building next door fell down too because of construction at the miter 10 store. I was in AGL and I attended to the gas leak.

I also went to another property in Redfern that was falling down because of a construction site next door. I was a plumber and I went there a few times to fix the burst pipes and leaking shower. This one never made the news.

Don't tell me that property doesn't fall in value
It literaly does fall down when a construction site is next door

 

good points. and the main problem with direct property is that JP (Joe Public) can't diversfy their investment. Usually you have to put your life into buying 1 property, generally JP can't put 10 properties to diversfy.

If your worried business risk in LPT's, they why not invest into unlisted property trusts? Many of them invest directly into buying direct commercial property, and then you simply collect rent! some pay monthly.

Bonus is you become a unit holder into a quality portilifo of properties, which you can view, see the tenancy lease length, tentants, building, rent collected, etc...

buying direct residential or commercial property is old school.. its costly, hard to monitor true costs, large maintaince and buying and selling is very hard and costly.. making you loose a significant portion of your investment amount. You also cant sell down a portion of your investment down the track.

 

Centro fell about 80 per cent. However, the ASX200 Property Index fell 11 per cent, so business-specific risk can be diversified away. SLF I think tracks the ASX Property Index, but I'm not sure.

Buying one residential property carries risk as well since you may be buying in the wrong area.

I think this may be why today cashed-up baby boomers are in the property markets, artificially inflating prices and making it hard for today's youth.

Many of these people probably have multiple properties. There are variations in property price rises across Australia. E.g. in the last year Melbourne median house price went up by 25 per cent while in Perth it was only 1 per cent. Within Melbourne, inner city suburbs received the bulk of the price rises with areas like Malvern going up by 40-50 per cent while in the outer suburbs we saw only single-figure growth or no growth. This is likely due to higher petrol prices making outers suburbs undesirable as well as rising interest rates forcing poorer outer-suburbs families to sell.

If you're chasing performance, the best houses so far seem to be the posh inner-city ones.

In fact, I've been reading the PDS for the Fortuna Fund, a residential real estate managed fund, and they say the following: "The Trust is likely
to hold properties that are situated in the following locations: the inner-suburban areas (i.e. within 5kms to 8kms of some of Australia's capital city CBD’s); and the inner city and beachside suburbs in Sydney and Melbourne (and Brisbane if the Trust invests in Queensland) which have historically shown high levels of demand and limited supply based on geographic factors."

See http://www.fortunafunds.com.au/Documents/RPTA_PDS.pdf

This fund has an internal gearing level of 60 per cent. If you truly believe property cannot go down in value, try borrowing from the bank to invest in a geared property fund. You would need extreme faith in bricks and mortar to be able to sleep at night since a small downturn can be amplified into a massive loss.

 

Street Tracks LPT fund is only doing 5% or so in dividends according to their website. Not sure how current that is.

In my area until recently it wasn't too hard to get 5% on vanilla resi, put in a bit of work and creativity and you could get 5-8+% on reno's and student accom. Depends on your skill level and main income source I guess, if you are a high income earner and don't want any hassle or concerns about bankruptcy (nobody I know predicted Centro) then what better way than through a conservatively geared investment in a LPT index fund?

 

Yep ... you could gear in your own name & stuff things up as well !

One IP & a PPOR is not well diversified & you can't sell a "small part" to reduce leverage.

If the mortgagee forces a sale - you are liable for CGT, fees and any shortfall. Likely you won't see many cents in the dollar just like a trust liquidation.

From a tax position though, I would prefer a low geared fund as the higher unit price reduces a chance that tax-deferred distributions will cause a capital gain (CGT E4).

Cheers,

Rob

 

Its more than that now - the information on the webpage is old. Check through an online broker.

Westpac broking has it @ 10.1% p/a

 

Oh wow that's an attractive yield, I have an Etrade and Commsec account, might wander off to one of those and dust off the cobwebs. Also might do some digging on the ASX website.

Any non broker online resource for all ASX instruments and their yields? A list of the 200 ranked by yield for example.

 

You should be able to run a report that returns > X% Div yield in E-Trade (or any broker for that matter)

Or just buy a copy of AFR - it has a complete list of the ASX 200 with yields, then just grab a highligher....

 

The 'Weekend Australian' lists the top 150 companies in order of market cap. Only takes a few minutes to scan through the yields & P/E ratios.