When we talk about property investment in Australia, most of the Australians think about a residential property investment. Residential property investment may be very popular investment option in Australia but it is not the only one available. Increasing number of Australians are looking at commercial property for investment purposes.
While the fundamentals of investment in commercial property are very similar to those of residential property but still there are some subtle differences between the two types of investment. Here are some of the differences between the commercial property and residential property investments.
For getting residential property finance, the deposit size is very small in Australia. When purchasing a commercial property, investors usually need a larger deposit to secure approval for the mortgage.
In most cases a deposit of at least 30% is required for commercial property finance approval. In some cases such as high LVR commercial loans, lenders can offer a maximum loan-to-value ratio of 80%.
Strength of Lease:
Lease period is typically much longer for commercial property. Some of the popular lease periods for commercial property are 5, 10 and 15 years. The lease periods for residential property investment are usually six to 12 months only.
Many Australian investors are typically attracted to commercial property as the long lease arrangements give them greater certainty of rental income.
Goods and Services Tax (GST):
Commercial property can provide greater tax deductions than residential property in Australia, through higher depreciation allowances. It is important to understand that tax advantages are even better when commercial property is bought through property trusts.
Higher yields vs. Capital Gain:
Some investors invest in property for high capital gain and some for a regular income. In most cases you are required to leverage capital gains against higher yields as it difficult to find property that will offer both. While the residential market in Australia performs in a rather predictable fashion in terms of capital gain, this is very less predictable for commercial property.
It is important to consult professional investment consultants, before deciding on a commercial loan or investment in commercial property in general.