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Why Property is a Stable Choice for Superannuation

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Some Things to Consider for Your Retirement

Australian superannuation retirement savings can grow 7% and then fall 7% the very next year, or lose $90 billion in one week as they did not that long ago.

There are investment approaches in property subsectors that have significantly less volatility and outperform the share market in the short and long term.

If superannuation funds invested a larger portion of their funds in this actively managed property asset class for steady growth, instead of the unpredictable and skittish stock market, then investments intended for retirement can expect double digit growth, compounded with income reinvestment and a first world lifestyle into old age.

Demand for Land is Only Going to Increase

Given that development land is a finite resource, and as Australia’s population and immigration steadily increases, there will be more demand for residential, commercial and industrial space.

Logically development land prices are going to increase at an ever-increasing rate. This dynamic makes real estate a very forgiving investment classes as.

If you choose to invest in growth locations, there will be even greater demand for completed property and accelerate development and prices ahead of the market in general.

stone set house

Real Estate is a Tangible Investment

Another advantage of investing in development land is the fact that it is always there, it is tangible, and cannot disappear or fall to zero value on sudden market sentiments like a electronic markets which can suffer shocks and collapses.

The Return Potential is Strong

The requirement for Real Estate is always there. In free markets, new businesses opening all the time, driving development and construction activities and increase the market price value of development land through demand.

Actively managed land acquisitions can often double or triple the disposal price depending on the location and what is being built.

Picking the right development project in the right area, at the right time, with the right property product takes expertise. Therefore, a managed fund that is continuously researching and conducting due diligence on development land and managing assets in a diversified portfolio is a strong and stable investment approach.

Most investors don’t have sufficient investment capital to take advantage of this approach on their own. Pooling with other investors in the Enhanced Land Fund and Premium Income Fund (both sub funds of The Guardian Investment Fund ARSN 168 048 057) produces a collective buying power to invest in development land and downstream developed property.

It also provides the reassurance of a professionally actively managed portfolio of property assets, ideal for superannuation investment with the safety of property with the performance of the share market..

Maximise your Property ROI

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Five tips to increase your return on investment from property

Today I will discuss various tips regarding maximising a property investment return on investment (ROI). ROI refers to how much value can grow from investing in an asset.

For example, investing in real estate property can produce growth, income or yield or perhaps all three. The low volatility for ROI in good property investments is a big contributor to positive cash flow, financial freedom, and wealth accumulation.

Avoid vacancy

This can be best achieved by finding long-term tenants to minimize the probability of dealing with a turnover. In case of non-availability of a long-term tenant, the next thing that can be done is to minimize the vacancy time by keeping the turnover time to a minimum.

Minimise turnover

Turnover costs money in a number of ways. There are the costs of advertising, repair costs, managing agent’s costs and so on. This might sound counter intuitive however this is a factor where a relatively lower rent may have the probability to increase the revenue.

One of your aims should be to look for tenants who will take care of your property and pay on a consistent basis.

Among the key factors involved in tenant retention is not only rent but also customer service. Ensure that your tenants get professional treatment since they are the paying customer. It is a good tenant/landlord relationship that helps in retaining tenants. Get in contact with your tenants and ask them for feedback.

Strategically increase rent

Try to increase the rent gradually on your long-term tenants. Tenants tend to be loyal, but may be tempted away if they can find lower rent on comparable property elsewhere.

Raise the rent keeping in mind the value of your property in that area. Coincide the increase in rent with some upgrade work like paint or refurbishing so that the tenant feels that they are getting something extra for their money.

Be diligent regarding late fees

Do not be a pushover and ensure that you get your due on time to maintain the profits coming in. If you allow it once, it will keep happening.

Add revenue streams

In case of multi-family properties, look for opportunities to add services like vending machines, ATM’s, public telephones, kiosks, telephone tower space and coin-operated laundry. These will not only provide revenue but will add to the resale value by raising the property’s ROI.

When to Invest in the Australian Property Market

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Some basics for those entering the market.

For many decades, the Australian property market has roughly followed a seven to ten-year correction cycle, where prices rise and fall with supply and demand. Investor appetite to buy slows when a price drop is expected in the cycle, and correspondingly home owners are less interested in listing their homes for sale until a cycle is nearly run its course, to capitalize as much as possible on value growth.

Choosing the right time to buy depends on three things:

  • How long you want the search to take
  • What your budget allows
  • How much competition you’re comfortable with facing
house roof and sky

Key factors driving the Australian market:

  • The political uncertainty overseas and in Australia may affect supply and demand.
  • A generally low-interest rate environment means the banks are likely to restrict lending by raising lending rates, particularly for investors.
  • Slow economic growth reduces available capital in circulation which hurts illiquid assets like property.
  • While the overall national demand is high, local conditions can vary considerable across the country. New South Wales and Tasmania for example could fall in the range of in-demand markets, while Northern Territory and Western Australia could be facing relatively low demands.
  • While apartment markets overall were not oversupplied, Melbourne’s CBD and Brisbane’s CBD area have seen high levels of development which could lead to a probability of a price slow down or fall.
  • The median pricing continues to rise across all capital cities, with Perth and Darwin being exceptions. This has led to the drive for affordable housing to change trend. The central coast suburbs in New South Wales are getting more popular, the reason being home buyers from Sydney are looking for larger, and more affordable housing options.
  • The outer east side in Melbourne is also experiencing increasing interest from home buyers driven by the affordability of larger homes on bigger blocks.
  • The Gold coast, the inner-city Melbourne, and Sydney’s inner west are among the most popular areas in Australia for shared accommodation.
  • China and other Asian demand for property in Australia is likely to continue. Chinese developers and Chinese buyers are more and more linked to new apartment developments in the capital cities.

Investing in the property market in Australia can be tricky for prospective investors as the investment properties are in high demand and distort the home owner pricing cycle.

With property pricing fluctuations, the timing for choosing the property for long-term benefits takes experience and up-to-date market information to maximise the value.

Benefits of Investing in Development Land

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Why Investment Land Should be Considered

Today I will discuss how investing in development land can produce surprisingly good returns. Idle money is under-performing money. Investing is a well-proven option for wealth accumulation over a working life. Investing in development land is a comparatively easy process with the right advice and is less volatile than some other asset classes.

Demand for Land is Only Going to Increase

Given that development land is a finite resource, and as Australia’s population and immigration steadily increases, there will be more demand for space; and  prices are going up at an ever increasing rate.

If you choose to invest in a growth area, there will be even greater demand for completed property and push development, and prices even higher. Therefore timing and selectivity can make a significant difference to returns from investing in development land.

Development Land is a Tangible Investment

Another advantage is that the development market is extremely unlikely to suffer shocks or pricing collapses like the stock market does for example. Investing in land is a tangible investment – it can’t disappear or fall to zero.

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Maintenance is Quite Easy

Unlike completed real estate, which needs constant upkeep and capital expenditure, development land is an asset class that needs very little maintenance outlay, either from wear and tear or the adverse events a structure could suffer.

The Return Potential is Amazing

The requirement for land is always there. With new businesses opening all the time, development, and construction activities tend to increase the market price value of development land. You can often double or triple the selling price depending on the demand.

Land has Fewer Competition

There is a usually less competition when considering buying development land compared to completed property, since real estate investors tend to flock to houses and apartments that can be rented, chances are that you will be facing less competition.

Therefore a managed fund that is continuously researching and conducting due diligence might be the a safer approach to access this asset class. For example, the Enhanced Land Fund and Premium Income Fund (both sub funds of The Guardian Investment Fund ARSN 168 048 057) invest in development land and subsequent property developments respectively, and provide the reassurance of a professional manager. For more information on these funds, see here.

 

Active and Passive Investment

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Rod Mackay Explains Active and Passive Investment Management

Active and Passive Investment management has long been the topic of debate on which is the better approach to a market. Rod Mackay explains the concept behind these two approaches for investors, their respective benefits and shortcomings, without taking a side.

The Concept

When an investor puts money into an investment fund using a manager, they are obliged to choose between two main strategies – active management or passive management.

Active Investment Management

Active management is speculative and seeks to outperform a market utilising the expertise of the manager, for example using research, analysis, and predictive techniques to ascertain market direction and volatility, and therefore when and what to buy and sell in the short term.

Passive Investment Management

Passive management is not speculative but invests in a market, and is driven by a belief that the performance of a market is simply the sum of the participating investments. Investors need a longer time horizon for growth, which generally outperforms active management volatility over the long term.

How it Plays Out

Rod Mackay points out that active management speculates on market anomalies, mispriced assets and misaligned market sentiment, in an attempt to produce an ‘alpha’ return, namely a value-added return above the market in general. For example, if the market rises, then an active manager will seek an even higher return in the short term. If the market falls, an active manager seeks to reduce the fall or even produce a positive return in the case of an absolute (greater than zero) return strategy, which intends to always be rising even when a market falls. This opportunistic approach typically plays out in the short term, perhaps minutes, hours, days or weeks.

Passive management investment, on the other hand, seeks to produce a ‘beta’ return which usually rises and falls with the overall market. For example, a passive strategy may simply duplicate a benchmark or index, which is a sample or subset of the market participants. Over time the market value is expected to grow with more rises than falls. Passive investment typically plays out over the long term, perhaps months and years.

Pros

Active Management

  • Flexibility: There is no specific approach, market direction or benchmark for active managers to follow.
  • Hedging: Active managers also have the option of hedging their positions by making use of various defensive mechanisms, like selling the downside risk, shorting or speculating on both rises and falls to minimise losses.
  • Diversification: Active managers are able to adjust to unexpected market movements by moving out of specific assets or subsectors to reduce risk without selling out completely.
  • Income: Often actively managed assets will produce frequent income while staying invested.

Passive Management

  • Growth: There is always the option to wait out market downturns. Assets usually grow with market activity over the long term with the effects of consumption, production, supply and demand, and can often ignore market volatility in the short term.
  • Larger Investments: Markets can usually accept much greater capitalizations (investment volume) of passive investments compared to speculative trading which is usually dependent on the volume.
  • Lower Fees: The value added by passive managers is simply to maintain the proportions of the investment to that of the benchmark or index. With no predictive component or high trading frequency the management fees are typically 1% pa and no performance fee.

Cons

Active Management

  • Higher Fees and costs: Active management has to pay for the expertise, increased activity and transaction costs of the trading. Typically, the manager will charge a higher management fee and also participate in the value-added performance if there is any. A 2% pa management fee and 20% performance is common.
  • Higher risk: The speculative and predictive character of active management means positions are always changing. They may outperform the market for a time, but then underperform as other active managers compete for the market opportunities, or they simply disappear with market movements.

Active Management

  • Exposure to market shocks: Large market corrections, long bear runs, and geo-political events can reduce passive investment value to an extend that taking a loss and starting again may be preferable than waiting for a recovery.
  • Longer Time Horizon: Typically, a longer time frame is required for passive growth which rises and falls with the market. Longer timeframes are more likely to experience adverse events.
  • No Income: Some passive investments can produce income, however a capital growth over the longer term is more common.

Exceptions to the Rule

Some investments can produce active management performance with passive management costs. For example, the Enhanced Land Fund and Premium Income Fund (both sub funds of The Guardian Investment Fund ARSN 168 048 057) invest in land and property development respectively. Both combine portfolio management with the natural accretive short-term growth of property development as an asset class. Both sub funds have a management fee of less than 2% pa and no performance fee.

 

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September Update

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September Update

One of our latest initiatives, the Enhanced Land Fund has begun strongly and is operating well. QB4 capital is the appointed investment manager for the fund and so far inflows are above expectations and have allowed a number of transactions to be completed already.

The fund is built for liquidity, profits and security. This is achieved through a range of strategies, including but not limited to; the management of enhanced land from short to long term, regular disposal of land (creating liquidity), buying and selling high, and by owning all land and gear outright.

One of the driving forces in this growth is QB4’s relationship with Guardian Securities Limited, the Trustee and Responsible Entity of The Guardian Securities Investment Fund; so far the relationship has been mutually prosperous.

Another facet of the fund is the Premium Income Fund Unit Class which will be launched this month. Our goal with this aspect of the fund is to transact on projects that provide investors with real property safety, along with share market performance.

I also recently put into ink a Collaboration Agreement with Mr Michael Wong who is the principal partner of IPP Wealth Managers Limited in Malaysia, which has a great presence throughout the ASEAN trading block.

Last month Mr Wong and I travelled to Vietnam to conduct a series of meetings with high net worth clients and business leaders; all of whom have agreed to contribute to the Fund with $2m each via 132 Business Talent Visa applications for permanent residency in Australia.

 

A sucessful September to all of you,

Rod.

singapore skyline

Singapore

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Networking in one of Asia’s richest countries.

Rodney Mackay

On my recent trip to Singapore I met with several individuals with a healthy net-worth, with my intention being to warm them to the idea of QB4 investment.

When it comes to private banking in the Asia-Pacific area all roads lead to Singapore, something of an achievement considering the existence of its close neighbor, Hong Kong.

A recent WealthInsight report puts the number of millionaires in Singapore at approximately 150,000, that’s one in every 36 people.

The Singaporean government is injecting hundreds of millions into funding startups, with many being in the tech industry. As a country it is connected and primed to ride globalism to even greater growth.

As an asset manager this makes Singapore very attractive for finding potential clients, and means there is a lot of wealth flowing around that can be tapped into.

Of the people I met with, some sat at the head of well-established companies, whilst others were in the process of buoying their startup company; hoping to rise amongst the sea of burgeoning technology opportunists.

As I had hoped, the leads I met with were open to the security and potential profits offered by QB4 and will hopefully become healthy business clients in the future.

I encourage anyone who is in the business of nurturing businesses or channeling wealth to consider tapping into Singapore’s explosive growth as a source of profitable business networking.

 

Rod.