Australian listed property trusts (LPTs) outperformed all other sectors, shares clearly outperformed residential property investment over 10 years and Australian share returns outclassed their international counterparts, according to a joint study by the Australian Stock Exchange and Russell Investment Group.
Domestic LPTs delivered the best after-tax returns over both the 10 and 20-year periods, even when factoring in personal tax rates, taxation of various assets and other associated costs.
According to Andrew Pease, investment strategist for Russell, the strong performance of Australian LPTs is largely due to merger and acquisition-driven consolidation and stapling, where trusts are merging property development business arms with funds management divisions.
Within LPT and real estate investment trusts (REITs), he said the strong representation of the Australian market was due mainly to the maturity of the domestic products relative to the more recent flows into global LPTs.
“Australia has one of the most developed LPT markets in the world . . . our share of this universe has always been quite high, with a lot of expertise in this area,” Pease said.
Another key finding that may surprise investors is the share market’s outperformance of residential property investment over 10 years, at both ends of the marginal tax rate.
Pease said the often misguided confidence of direct property investors concentrated on the “headline-grabbing returns” of property, to the exclusion of the numerous costs incurred such as maintenance, management expenses, government charges, conveyancing costs and insurance.
He believes the stronger returns of Australian shares versus international shares indicates the importance of franking credits in investment yields.
Pease hopes the study impresses upon the industry just how crucial a highly diversified investment portfolios is right from the outset, and the danger of relying on past performance of asset classes as an indicator of future returns.
“Ten years ago, no one would have picked LPTs as delivering the top rate of return,” he said.
