Pam WalkleyREAL ESTAT
Followthegoldenrule
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You can start building a diversified portfolio with as little as $100
N
ot many share investors hold just
one stock. Yet the majority of resi-
dential property investors hold just
one property – about 73%, according to tax
office statistics. By putting all their eggs in
one basket they are breaking a golden rule
of investing: diversify as broadly as possible
so if one investment turns sour it doesn’t
mean your entire portfolio is a lemon.
One of the main reasons people invest
in just one property is the massive outlay
now needed to buy houses and units in high-
growth cities, where median prices for some
suburbs are over $1 million. To buy a
$1 million property you need a $200,000
deposit to avoid expensive mortgage
insurance; state stamp duty can cost up to
$57,500. You’ll need to borrow $800,000,
so you’ll have to be a big earner!
But even if you can manage all this,
warnings that home prices, especially in
Sydney and Melbourne, are extremely over-
heated, plus the fact that mortgage interest
rates are already on the rise, means it’s not
an ideal time to get into the market.
If you want your portfolio to include real
estate and to be well diversified, it’s easy to
find alternatives to buying a house or a unit.
You can get local and global diversification
across sectors – including office towers,
shopping centres, factories and tourism
property – without having a huge amount of
money or getting deep in debt.
If you want to stick to residential you can
buy a stake in a prime property for less than
$100 through BrickX (brickx.com). At the
time of writing stakes in seven properties
were available – five in Sydney and two in
Melbourne – at prices ranging from $69 to
$158. Each property is divided into 10,000
bricks and an individual investor is able
to buy up to 500 bricks. Investors receive
a proportional share of the rental income
each month and capital growth (or loss) is
reflected in the changing price of the bricks.
Investors can get exposure to local and
international property by buying a real
estate investment trust (A-REIT) on theCareful what you
wish forT
he only way Australia’s housing can
become affordable is for prices to
drop, by a lot in some places, says respect-
ed real estate researcher Michael Matusik.
While he argues that an accepted
affordability benchmark sees dwelling
prices as sustainable at three to four times
household income, he has made some
adjustments to produce the table below.
For Sydney and Melbourne, which
are “a bit special”, he allows six times
earnings and for “the wannabes” (south-
east Queensland, Canberra and Perth) he
allows five times the benchmark.ASX with a minimum of $500. The sector
returned 8.2% in the year to February 2017,
as measured by the S&P/ASX 300 property
trust index. And although this is well down
on the 16.75%pa for the past five years,
the average distribution yield is currently
forecast at 6.1%, meaning A-REITs
especially suit investors needing income.
Exchange traded funds (ETFs) also
provide exposure to local and offshore
real estate. They are listed on the ASX
and require a minimum investment of
$500. For example, Vanguard’s Australian
Property Securities Index (ASX: VAP)
has won Money’s Best of the Best award
for specialty ETFs five years in a row. It
returned 8.36% in the year to February 2017
and 16.46%pa over five years.
And you can buy into a property mFund
with a minimum of $1000, which will
secure you a stake in the APN A-REIT, a
winner or placegetter in the property secu-
rities fund category in Money’s Best of the
Best for the past seven years. It produced
an 8.68% return for the year to February
2017 and 16.75% a year over five years.
With $2500 you can invest in crowd-
funder DomaCom’s managed fund, which
enables you to buy units in segregated sub-
funds holding individual properties or par-
cels of properties. It scored an A-plus rating
from Property Investment Research (PIR).
“You can invest in a $500,000 house,
putting up a $100,000 deposit and borrow-
ing $400,000. Or your $100,000 could buy
a stake in several properties, giving you
diversification,” says Arthur Naoumidis,
DomaCom’s CEO.
And then there are unlisted property
securities funds and syndicates, some of
which invest in single properties and some
in portfolios. See pir.com.au.Pam Walkley, founding editor of Money and
former property editor with The Australian
Financial Review, has hands-on experience
of buying, building, renovating, subdividing
and selling property.LONG WAY FROM THE TOP
LOCATION HOUSE PRICE
FALL REQUIREDAFFORDABLE
PRICE
Sydney 47% $602,000 $682,000
Melbourne 23% $185,000 $619,000
SE Qld 9% $55,000 $546,000
Adelaide 29% $147,000 $367,000
Perth 14% $94,000 $575,000
Darwin 28% $173,000 $440,000
Canberra 7% $50,000 $635,000
Hobart 23% $105,000 $348,000
Average 37% $323,000 $557,000
Source: Michael Matusik