Fees and maintenance costs detracting from property returns
While property prices have steadily risen over the past three decades, SMSF investors should ensure they weigh up the ongoing maintenance costs and fees associated with property assets before deciding to invest, says an investment platform.
Stockspot chief executive Chris Brycki explained that while bricks and mortar are often seen as a secure investment yielding good returns over time, it is also important for advisers and their clients to weigh up all the costs against the long-term returns of property.
Mr Brycki said that ABS figures from 2019 reveal a price increase of 7 per cent per annum for dwellings in capital cities in Australia over the last 32 years.
“However, this 7 per cent per annum fails to account for the cost of renovations, improvements and maintenance over that time,” he explained.
“The gross yield on houses in Australia is 3.2 per cent and 4 per cent for units, according to SQM Research. However, there are substantial running costs which need to be taken into account to arrive at net yield.”
Mr Brycki said that properties come with ongoing costs such as council rates, body corporate fees for home units and town houses, water and insurance which the RBA estimates to be at least 2.6 per cent per year.
It is also important to consider costs such as conveyancing and if the property will be sold at a later point then the investor will need to consider real estate commissions and advertising which may add up to about 3 per cent.
There can also be land tax implications for properties above the land tax threshold, he said, which was $629,000 in 2018.
He also pointed out that over time, bathrooms and kitchens need updating or replacing while decks, pools and gardens also need ongoing maintenance.
While short-term rentals have the potential to yield more than long-term tenants due to the higher fees for a night, especially with the boom in the short-term rental market, he warned investors that this has also seen an increase in competition between property owners.
“According to AirDNA market data, there were 1,034 active listings in Melbourne’s beachside suburb of St Kilda and 812 active Airbnb listings in Sydney’s Bondi Beach alone,” said Mr Brycki.
“There is also a great deal of additional inconvenience and expense such as managing the property, cleaning and arranging access. And there is the chance that the property is vacant for long periods of time.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.