29 Oct SME’s need to be careful about property – Jonathan Street
Jonathan Street from Think Tank Group says small to medium size enterprises in the retail sector should always think carefully about acquiring property for the dual purpose of using it for their business and for building their retirement savings. He joins me to discuss this.
Kevin: Investment for retirement in your self-managed superannuation fund by acquiring the business premises you occupy is both allowable, as opposed to putting your principle place of residence into your self-managed superannuation fund, and it seems like a good idea. Rules do not allow you to occupy your principle place of residence, but it is different if it’s your place of business.
Kevin: It seems like a good idea, as I said, and good use of your super fund savings, but Jonathan Street from Think Tank Group says small to medium size enterprises in the retail sector should always think carefully about acquiring property for the dual purpose of using it for their business and for building their retirement savings. He joins me to discuss this.
Kevin: Jonathan, thanks for your time.
Jonathan: Good morning, Kevin.
Kevin: Jonathan, why are you advising these business owners to hasten slowly, and I understand it’s restricted to the retail sector. Is that right?
Jonathan: That’s correct, Kevin. It’s largely the softness that we’re seeing in the sector that’s been materialising over the last few years, but certainly coming into sharper focus in recent times with statistics that are being reported by the analytics firms, and these are principally firms that service global institutional investors. It’s good intel to actually feed down to the SMSF sector, but there’s certainly weakness in retail property values and returns at the present time, and we don’t see that changing in any rapid way in the near term. So I think it’s a case of being wary around particular retail properties and the location that they’re in, and also the purpose that they might be used for.
Kevin: Well let’s have a look at the location. Does that advice hold true for regional as well as metro properties?
Jonathan: It’s probably more pertinent for regional at this present point in time, Kevin, because, if anything, there’s a more pronounced softness in the regional areas, and retail tenants are finding it harder to make ends meet, and that’s leading to a softness in income and also a softness in capital values.
Kevin: Yeah, ’cause I always looked at a softness in income, understandable, but I would’ve thought that owning the premises for a retail operator is probably going to lower their outgoings in some circumstances. Wouldn’t that help them?
Jonathan: Well, I think it’s a case of values not having readjusted at this point in time, so we’re basically saying that values are overvalued at the present time. Consequently, if you’re looking to buy, you’re probably going to see price falls in the next sort of six to 12 months and you’re better off waiting for that.
Kevin: Okay, so you’re not ruling it out all together, you’re probably saying maybe wait for a bit of a market alignment. Can you help us then with a bit of due diligence that you’re suggesting business owners should apply before they commit. What should they be looking out for?
Jonathan: Yes, look, it’s definitely a function of timing, and there’s nothing to say that a retail or any other type of commercial property shouldn’t be considered for this type of wealth management structuring, but the due diligence that fundamentally goes into it applies to all sectors. At the moment, with respect to retail, we’d be recommending that people look very carefully at the location, so what that particular retail premises is surrounded by, what the passing trade that the purchaser or the occupier of that premises can count on for their particular type of business for the longer term.
Jonathan: Because when we’re talking about putting a property into a self-managed super fund, it’s a long-term proposition that we’re looking, or that the fund members are looking to take advantage of once they move from the accumulation to the pension phase, so that might be 10 or 15 or even 20 years away, so you have to take a very long-term view on how satisfactory or appropriate that commercial property will be in those circumstances for those members.
Kevin: In the case of someone who has an existing business and probably leasing those premises from another landlord, the opportunity comes for them to buy it. They would understand a lot of that due diligence you’ve just been through in terms of flow, where it is, surrounding businesses and so on, wouldn’t they?
Jonathan: Absolutely. They’re best placed to understand that because they’ve had time in situ to really get a sense of how well that proximity works for them and their future business and their plans.
Jonathan: It also gives a good opportunity to negotiate perhaps more effectively on a purchase price, given that the landlord is likely to be feeling these sorts of signs of weakness in commercial property, in retail, in commercial, in a number of instances in wide geographies across the country.
Kevin: Very good insight, Jonathan. Thank you very much.
Kevin: Jonathan Street’s been my guest. Jonathan is from Think Tank Group.
Kevin: Jonathan, thanks for your time.
Jonathan: Pleasure to be with you. Thanks, Kevin.