Australia’s passion for property pales when it comes to SMSFs

This article was originally published 15 January 2016, and has been updated 21 November 2016.

Australia’s over half a million SMSFs have nearly 60% of their assets, at a value of $346.68 billion, allocated to listed shares and cash/term deposits[1]. This presents a very real concentration risk and raises the question why, considering our national passion for property, real estate does not feature more prominently.

The residential story

It is no secret that Australians have a love affair with residential property.  Residential real estate accounts for more than half of all household wealth[2], reaching a total value of approximately $6.6 trillion by October 2016.[3]

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Despite residential property maintaining its status as the nation’s single largest asset class[4], SMSFs are steering clear and this is no surprise.  On top of the fact there is very little liquidity in residential real estate, this asset class is currently offering low rental yield and slow capital growth.

While headline figures indicated that capital cities recorded strong capital gains, the reality was that Sydney and Melbourne were the only capital cities to see substantial increases in values. Perth and Darwin both recorded losses and the remaining capital cities posted modest gains.[5]

Compounding residential real estate’s woes, investors are also dealing with rental rates that are rising at their slowest pace since June 2013[6]. As of September 2015, gross rental yields for houses in capital cities was 3.4%, whilst gross rental yields for units was 4.3%[7]

Commercial Property

In contrast with the residential market, the commercial market has generally performed well over the past three decades. Argued by[6], commercial real estate has the potential to deliver substantial cash flow ahead of residential real estate with the average annual return on commercial property reaching 14% for the year ended March 31 2016, according to Property Council-PD Australia All Property Index[7].

In fact, over the past 30 years commercial property has outperformed the overall equities market. The Property Council / IPD Australia All Property Index showed the total return for the year to 30 June 2015 at 11.3%; well above equities at 5.6%. [8]

Accessing commercial property is not as complicated as many SMSF investors believe and does not require a huge outlay of money.  Even those with limited capital can invest in commercial property via managed funds. Larger investors can also take up opportunities as wholesale investors. Given the number of listed and unlisted property trusts available in Australia, let alone overseas, there is an opportunity for everyone to invest in commercial property.

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Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds Management Limited does not warrant or represent that the information in this article is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds Management Limited accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated. This information is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. It does not provide financial product advice nor is it an offer of securities. Applications may only be accepted by completing the applicable application accompanying the relevant PDS. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser, who will conduct an analysis based on your circumstances. Past performance is not a reliable indicator of future performance.

[1]Australian Taxation Office, Self-managed super fund statistical report, September 2015

[2] CoreLogic RP Data, Housing and economic update, November 2016

[3] CoreLogic RP Data, Housing and economic update, November 2016

[4] CoreLogic RP Data, Housing and economic update, November 2016

[5] CoreLogic RP Data, CoreLogic’s end of year wrap up, December 2015



[8] The Property Council IPD Australia All property index, Results for the year to 30 June 2015,  July 2015