Financial plannersshould take on estate agents for a slice of the direct property investment market, says a new report by Property Investment Research (PIR).
According to PIR, direct property accounts for 82.2 per cent of the property investment market and there are 1.8 million individual investments.
“Direct property investment has rapidly become a major new opportunity for financial planners,” the report says.
“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 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.
PIR is recommending property should make up between 10 and 40 per cent of a client’s diversified portfolio, depending on their risk profile.
The report says the high percentage would raise some questions, but if the property part of a portfolio was a mix of listed property trusts, property syndicates and mortgage funds, concerns over areas such as liquidity could be met.
