Why has foreign investment in commercial real estate doubled?
A great number of investors are looking for opportunities in Australia’s real estate market as alternatives to stocks and bonds investments. The commercial real estate sector, in particular, can potentially deliver the growth and stable returns that most investors seek, even under uncertain economic conditions.
In the past few years, foreign investors have been increasingly interested in commercial properties in Australia, as illustrated by their rising share of transaction values. Most foreigners buy established properties, though some have also shown interest in developing new commercial buildings or converting existing buildings into apartments. It is likely that these purchases contributed to the sector’s net financing and also to construction activity.
Having a large resource base and a relatively small population, foreign investment fills the gap between what Australia saves and invests each year. However, foreign investment in commercial real estate is vital to Australia’s economic growth, and without it, we cannot build our economy to its full potential. In addition, we would have fewer funds to invest in hospitals, schools, roads and other government services.
Do you ever think about investing in commercial real estate but do not follow through with the idea because of the warnings about the high risk entailed in the venture?
A common misconception is that the commercial property market is only accessible to experienced investors or those with larger portfolios. No matter if you are a seasoned investor or a novice, there is room for everyone to invest in Australian commercial real estate. Explore the perspective and experience of a well-established boutique commercial real estate agency and discover why foreign investments in commercial real estate have doubled.
High-income potential in the commercial sector.
A major reason why foreign investors are attracted to investing in commercial properties is the higher rate of return they provide compared to residential ones. On average, commercial properties have an annual return between 6% and 10% of the original purchase cost. That’s a much higher rental yield range than what is typically associated with residential investments, which only range from 3% to 5% on an annual basis.
Cash flow and current income.
Investments in commercial real estate can offer regular income that can be higher than the yields typically found in dividend stocks and bonds. As commercial real estate historically does not move parallel to stocks and bonds, it can potentially provide protection and diversification against the volatility of the financial markets.
The purchase of commercial real estate is likely to provide a variety of tax advantages to the investor. Tax shelters and deferrals can potentially be achieved through deductions for depreciation, interest expense, and other items.
As an example: Current cash flow is frequently less than the total depreciation and interest expense, resulting in a return similar to a tax-free bond. Usually, these benefits are recouped upon the sale of the property.
Australian Government’s approach to foreign investment.
Foreign investment is welcomed by the Australian Government due to its huge benefits while recognizing the need to ensure investments are in the nation’s best interests. Foreign investment has played a crucial role in building Australia’s economy and will continue to do so by supporting economic growth and innovation. Without foreign investment in Australia, there would be a decline in production, employment, and income.
Still unsure about your investment in commercial real estate in Australia? Talk to the experts at Axis Property about any questions you may have.