While the residential property market may be slowing, it is probably time to lock in your investment in commercial property, going by the rate of returns for the year ended March 31.
Commercial property delivered an average annual return of 14 percent, according to the Property Council-PD Australia All Property Index, now managed by MSCI, said a report in the Australian Financial Review.
The index measures only directly held property investments and excludes gearing in its calculations.
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The result handsomely beat the 9.2 per cent return on property shares.
Rental returns drove the result. The average income yield on the $160 billion of property in the index was 6.6 per cent.
The S&P/ASX200 A-REIT index, which includes the top 17 trusts, has delivered a 17.5 per cent total return since March 31.
For direct property, the March result was the best since the September quarter 2008 just before the financial crisis, the AFR report said.
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The Reserve Bank has long warned of the disconnect between the underlying fundamentals in the sector and the commercial prices.
But AMP chief economist Shane Oliver has said several times that low interest rates favour commercial property. The RBA cash rate is at a low of 1.75 percent at present.
The article cited executive director of MSCI, Anthony De Francesco, as saying commercial property would "hover" around the current cycle peak for the rest of this year.
"Concern about the weakening domestic economy and global economy are likely to constrain demand for space," he said.
In the past year, the aggressive demand for commercial property has cut the yield across the MSCI index by 65 basis points to 6.1 percent.
According to Dr De Francesco, the office sector was strengthening while retail shopping centres and industrial sectors were moderating. He also noted that the Sydney office market was strengthening, while Perth was weakening.
