Introduction
Property and real estate have always been an important and preferred form of investment due to the security Australia Property investment delivers when compared to other forms of investment (Baum, 2015). Unlike most other commodities such as diamond, gold, oil and fixed deposits, property delivers a stable appreciation price with very rare situations where the property will lose value. To ensure property delivers profitable returns the investment must ensure certain criteria are followed which reduce the risk of property representation and lack of customer interest.
Property and the Economy
Australia has seen a major influx of investors purchasing commercial properties which has resulted in the real estate and property industry the third largest industry in Australia. As of July 2017, the property industry was contributing approximately 183 billion dollars towards the nations GDP. This is a huge amount of investment towards commercial property and real-estate and amounts to approximately 65% of the total expenditure of Australians goods and services industry (Saggers, 2017).
The main investment was done towards commercial office space located on high rise buildings which are growing demand among small businesses. As more businesses are set up the demand for commercial space is increasing and many prefer renting space on the high-rise commercial building as these properties are low cost maintenance, low rental and tend to attract most interest. There are several reasons related to the increasing demand among Australians to invest their savings towards commercial rental properties mainly on large high-rise building which shall be discussed below.
Higher Returns on Investment
Commercial Properties in Australia and most other developed and emerging markets are appreciating at an average of 15-20% per annum. This is a very high rate of appreciation as compared to other forms of investment such as gold, silver, and fixed deposits (Isaac & O'Leary, 2012). It’s also very secure as long as the individuals have invested in a legal commercial property and completed all the required paper work.
At this rate of appreciation on investment on the commercial property on high rise building and large malls the properties are capable of doubling in as little as 5 years but these also require for the investor to be patient for the right buyer. Just like any other investment rushing and desperation can lead to selling a commercial property can easily result in incurring a major loss.
Rental Income
We are all growing old and constantly worried regarding income during our old age due to pension plans growing scarcer. Investing in commercial rental properties such as shops and offices on high rise building and other commercial building helps deliver a stable income to the investor while still appreciating (Turner, 2015). Today many middle aged people are investing in commercial property for rental purpose in major Australian cities as they can easily be rented to businesses, shop owners and as office and storage space. Investing in rental property allows the individual generate constant rental income from a property without needing to work which is very important during old age.
Long Term Security
Investment on commercial rental properties in Australia also delivers long term security to the investor due to properties not being very easily cashable. This helps the investor avoid making rash decisions related to the investment thus allowing them to make a clearer and more focused decision. In many situations commercial property sales and purchases will take several months before both parties make a final decision and payment for the property (iMinds, 2009).
With other investment such as gold and silver or fixed deposits, the investor can easily sell their commodity to get cash which could result in them incurring losses due to taking fast decisions. Investment in commercial rental property in Australia allows the investor retain the possession of a property for an average of 5 or more years before selling it unless they have the right and ready investor waiting for the property
More Revenue for Government
The Australia government and local authorities are also generating considerable revenue from the increasing investments in commercial property and real estate. The government has licencing and other fees which generate income and having more commercial spaces occupied by businesses means more revenue generated towards the government’s budget.
Revenue is also charged on the sale of the properties through registrations and legal changes which investors need to pay while registering their new property (White, 2010). With the real estate and property industry ranked third largest in Australia, the industry generates a considerable amount of revenue for his government.
Property Value Drivers
The commercial real estate and property market are registering a spike in Australia, making I very important for the investor to carefully evaluated property value drivers before investing on any commercial property (Jensen & Voordt, 2016). This is due to these drivers having a direct influence on the property’s value thus making it important that are addressed and meet the best criteria before investing on any property.
Property Location
A commercial properties location is considered as being among the most important factors linked to successful Australia Property investment. The property should be located at an approvable location and be situated in a developing or well-developed locality (Rowland, 2010). There should be all facilities and utilities available at the location thus reducing or eliminating the requirement to travel long distances to access facilities. In certain regions and among certain cultures the direction, shape, and size of a property also continue toward its value thus all aspects need to be take in to close consideration before making the final decision.
Property Size
In most scenarios, it is considered that the larger the better, with the commercial property, it’s important to also keep in mind sub division rights, resale, maintenance of the property. Investing on a large commercial property should only be done if the government authorizes subdivision of the said property. On certain property tenures, both freehold and lease hold the government will have a restriction related to the subdivision (Booth, 2004).
This is especially true on large office spaces on high rise buildings which may have a caption on the property size so as to prevent internal constructions which could compromise the properties integrity and strength. Different size Commercial properties must therefore be invested in thus allowing the investor target different size customers and businesses to rent them
Legal registered Property
With the property boom being experienced in Australia here is also a growing number of private real estate and property developers who invest in large properties and sub divide them for resale. This is generally more affordable for middle-income group investors it's impotent to review the property back ground and ensure legal permission to subdivide the property has been given by the legal authorities (Booth1, 2004). Never invest in a property which has not clear paperwork as this can result in failing to secure buyers at a later stage. This also severs the bond with the government making these illegal properties which are unrecognized. Every property must have legal and authorized paper work before investing in them.
Affordability
Commercial Properties affordability must also be taken into consideration by comparing the location, size legal recognition, and target buyers. Should ideally be purchased and renovated or developed keeping in mind the target buyers budget. It would not make sense to invest in a property for 50,000 AUD and investing an additional 25 or 30,000 AUD towards its renovation.
This would simply spike the price and make it unaffordable for most investors. Renovations and development should be done gradually keeping in mind the customer budget and affordability since many property buyers will mainly consider the plot value, not the value of the building (Karamujic, 2015). Over investing towards renovations also pushes up the cost which results in hiking the rental demanded the property which discouraging tenants from renting the property since many are searching for basic accusation and not looking to luxury on rental properties.
For properties intending to be resold renovations and development should not surpass 10% of the total property value per year as this would contradict standard property appreciation rates which would overvalue the property. Development should either be done once and completed or distributed gradually over a 10-15 year period which would allow the property owner t gradually develop the property without undermining the property appreciation rate.
Return on Investment
A property’s rate of return on investment is another very important value driver which requires close evolutions before investing on any property. While most properties will yield an attractive return on the investment the time frame the property delivers this return also plays an important role.
Return on investing is usually determined by the location of the commercial rental property where by properties in fast developing areas which registers a higher return on investment rate as opposed to properties further away from the city (Lee, 2016). Again this returns to the location which is determined by the investor’s budget and property size which influence the location choice thus determining the rate of return on investment.
Conclusion
Australia has registered among the biggest property booms during the past five years while other regions have seen a slump, but at the same time, there are other factors which influence Australia Property investment which must be considered closely. The property remains the most secure and stable investment to make but it's critical that the property value drivers and the purpose of the property are determined before the investment is made thus allowing the investment secure the biggest benefit and profit from the investment.
Bibliography
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