Residential slice can lift portfolio returns

28-Oct-2016

By Jerome Doraisamy

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Including residential properties in a balanced investment portfolio can improve its performance, according to fractional investment firm DomaCom.

Speaking about a recently released report from Aitchison Consultants, DomaCom said very positive results could be gleaned over a rolling 20-year period for portfolios with a variety of different asset allocations that included an allocation to residential property.

Aitchison’s research found that a growth portfolio with a 20 per cent allocation to real property could be improved by up to 9.6 per cent, a balanced portfolio with a 15 per cent allocation would show a 6.7 per cent improvement, and a moderate portfolio with just 10 per cent exposure would have a 3.7 per cent uplift.

The relatively low volatility of property could provide a stable anchor for portfolios of all types, the group said, yet the industry asset allocation average in these types of portfolio ranges was usually between 2.9 per cent and 3.8 per cent.

For those looking to increase their exposure to property without the need to borrow, DomaCom was the ideal vehicle, said the group’s chief executive Arthur Naoumidis.

“[Through DomaCom], ownership can be fractionalised across multiple properties for as little as $2000 per property,” Naoumidis said.

“So even a $10,000 allocation can achieve diversification in five different types of property in five different geographical locations.”

He added that although many financial advisers worked with a professional property adviser to identify suitable assets, the added benefit of DomaCom’s offering was that it also identified properties that could be crowd-funded.

“Currently, we have a campaign for The Block, a group of high end apartments featured on the Channel 9 program of the same name,” he said.

The provider chose The Block because high profile properties historically rented at a premium rate of about 4.2 per cent to 4.9 per cent, which would be mostly tax-deferred given they had substantial tax depreciation schedules, hence making them ideal for investment portfolios, he said.

“This season [of the show has seen] the rental estimates between $2000 and $2500 per week, with depreciation schedules ranging from $83,000 to $93,000,” he said.

DomaCom argued a modest allocation to these properties would enhance most portfolios, but as the television series was set to finish soon, investors would have to move quickly to capitalise.

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