Issue 45: Property investment from a different perspective – Commercial Real Estate Credit

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Issue 45: Property investment from a different perspective – Commercial Real Estate Credit

Property is an investment class much favoured by Australian investors; be it held directly via a residential investment property, through a listed A-REIT or perhaps a premise from where owners conduct a business. In many cases these investments form part of a SMSF. 

As at March, SMSFs held around $135 billion in non-residential and residential property combined, representing around 15.8% of the total $855 billion in SMFS assets (source: ATO SMSF quarterly statistical report March 2023). It may surprise some to learn that of the total property assets domiciled in Australia and held by SMSFs, the majority at $88 billion, was categorised as non-residential or commercial. 

Such a high proportion of commercial property held in SMSFs may be the result of SMSF members and trustees being business owners or partners who have included their commercial premises in their funds.

However, this may not be an opportunity available to everyone and the proposed legislation – that would see the imposition additional tax on unrealised gains where a SMSF account balance is assessed as being over $3,000,000 – may be a deterrent. Regarding this, the SMSF Association is urging the Federal Government to re-open consultation on this measure before progressing legislation. 

For others, rising interest rates may also be a concern, as investments into commercial real estate can be at significant cost, requiring a loan to assist with the acquisition.

However, there may be an alternative for those concerned and that is to be a ‘lender’ to those seeking to borrow for commercial real estate. This is referred to as Commercial Real Estate (CRE) private credit and investors wishing to participate can do so via ASX.

To understand more about CRE private credit, I discussed the characteristics of it with Kathleen Yeung, Global Head of Corporate Development at Qualitas, an ASX listed entity with a listed investment vehicle providing investors with access to CRE private credit.

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Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.

This is general information only and is not intended to provide you with financial advice and has been prepared without taking into account your objectives, financial situation or needs. The Trust Company (RE Services) Limited (ACN 003 278 831) (AFSL 235150) is the Responsible Entity and issuer of units in the Qualitas Real Estate Income Fund (ARSN 627 917 971) (“Trust” or “Fund”). QRI Manager Pty Ltd (ACN 625 857 070) (AFS Representative 1266996 as authorised representative of Qualitas Securities Pty Ltd (ACN 136 451 128) (AFSL 342242) is the investment manager of the Fund. Prior to making a decision about whether to acquire, hold or dispose of units in the Fund you should consider the Product Disclosure Statement (PDS) and target market determination (TMD) for the Fund to see if it is right for you. The Fund’s PDS and TMD is available at www.qualitas.com.au/qri. Past performance is not a reliable indicator of future performance.

Ian Irvine - Guest Contributor

Ian has been a keen investor for over 40 years and can draw on his experiences from both investing on his own behalf and also having worked in financial services for more than 30 years. Over this time, he has seen many changes that impact investors’ attitudes to in what and how they invest.

He started his career in what is now referred to as fast moving consumer goods (FMCG) or grocery, working for an Australian margarine manufacturer. In 1986, he was recruited to Westpac around the time of deregulation of the sector, where he spent 10 years before taking a role at AMP and then with ASX for 14 years up to the end of 2017. He continues to be involved with ASX; working on their educational programs.

In 1996, he and his wife established their own SMSF and again the experience and lessons learned regarding managing an SMSF over the years have provided him with many insights and ideas. He enjoys sharing these with others where these are helpful and always suggest that if an investor or SMSF trustee is unsure, that they should seek appropriate advice from a licenced professional.

Ian holds a B. Com (UNSW), and lives in Sydney and enjoys travelling to and meeting investors and SMSF trustee at the educational events with which he has involvement with from time to time.