A Medium to Long Term Approach

Preface: After 20 years of building his business Precision Group, Mr Shaun Bonett (one of Australia’s Top 200 Richest People) says that the most important aspect of business in the Australian Commercial Property Sector is that it is done with a focus on substance and relationships, instead of appearances. Here he shares his insights he has acquired in building his business in Australia.

There are significant transaction costs in Australia when you buy a property and when you sell a property. Together with Government stamp duty and your consultants’ costs you can expect to pay approximately 7.5% of the value of the property when you buy, and the same when you sell (total of approximately 15%). As a result most profit in property usually arises when purchasers are willing to take a medium to long term investment strategy of at least 5 to 10 years, and ideally longer.

The primary reasons why I recommend a medium to long term approach when investing in Australian property are:

A. An investor has to pay a total of approximately 15% of transaction costs on the value of a property, when they buy and sell a property.

B. A and B grade commercial property assets have an excellent track record over the last 50 years in Australia of providing consistently above market returns.

C. Based upon the above, the Law of Compounding returns recommends that an investor remain in an asset class that provides consistently above market returns, because over an extended period it would further provide a compounded accelerated return that other asset classes would not provide to an investor.

D. The Australian tax system levies capital gains tax on the sale of a property asset, but does not levy this tax until an asset is sold. Therefore the longer an asset is held, the greater the time that an investor can continue to earn a return on capital that would otherwise be subject to capital gains tax.

Of course, any investment always carries some risk, however, as we have discussed, by taking a long term investment horizon, there is actually less risk of being subject to short term fluctuations and a greater opportunity to enhance an investor’s return over an extended period. Most property risks that extend beyond a property’s lease covenants can be insured against. Further and in any event, an investor is always usually able to change their strategy if they do decide that they wish to sell and exit an investment early.

The best examples of investors whom have benefited from taking a long term investment approach are investors in Australia’s property trusts that are listed on the Australian stock exchange. Many of these property trusts over the last 50 years have returned their investors many 1,000% in capital growth on their initial investments as well as paid dividends, and thereby rewarded the patience of their investors.   

（Shaun Bonett, CEO and Managing Director of Precision Group）