Financial planners should take on estate agents for a slice of the direct property investment market, says a new report byProperty Investment Research(PIR).
PIR estimates this could generate an additional $10 billion a year of investments for planners.
“Direct property investment has rapidly become a major new opportunity for financial planners,” the report says.
The direct property investment market attracts $180 billion in funds, and accounts for 82.2 per cent of the property investment market.
Further, there are 1.8 million individual investments, most of which are handled by real estate agents.
“Many strata-titled residential apartments, offered by property developers and real estate promoters, are now being marketed through financial planners and so are no longer the exclusive domain of the real estate agent.”
However, PIR warns there are risks in recommending direct property investments on behalf of developers.
“Despite tax advantages in the early years, many developments do not achieve sufficient capital growth to generate investment-grade returns,” the report says.
“Some developments are considerably over-priced and rent guarantees are often not worth the paper they are written on.”
PIR recommends advisers obtain an independent report on the potential returns and, if the developer is unable to provide one, then to walk away from the investment.
If the investment turns sour, failure to obtain an independent report before making a recommendation to a client could result in the planner being sued. In court, a planner would have to provide evidence of their due diligence and justification for making the recommendations.
“All these property offers require specialist skills and independent evaluation on a risk/return basis,” the report says.
PIR recommends property should make up between 10 and 40 per cent of a client’s diversified portfolio, depending on their risk profile.
It admits the higher percentage would raise some questions, but if the property part of the portfolio were a mix of listed property trusts, property syndicates and mortgages funds, concerns over areas such as liquidity would be met.
“By combining specialist independent research, suitable training and quality property products, PIR estimates financial planners can realistically expect to shift the market share in favour in the financial services industry potentially closer to 50/50 over a short period of time,” the report says.
