Childcare assets are generating a sales frenzy with attractive yields helping keep South Australia to the fore of a boom sector, says a Melbourne based industry expert.
Eleven national childcare property assets were sold within a 10-day period from the beginning of May, associate director with real estate outfit Burgess Rawson, Adam Thomas, said.
The sales burst included a Murray Bridge property which went for $1.53 million to an SA buyer (pivotally with a yield of 6.71 per cent) and a Hahndorf concern which sold for $2.87 million, at a yield of 6.19 per cent.
Childcare auction clearance rates continued to average over 90 per cent, in stark contrast to falling residential auction clearance rates, particularly in Sydney and Melbourne, Mr Thomas said.
“We continue to experience high levels of inquiry for childcare assets, particularly in SA. Supply is simply not meeting the demand as yields continue to compress.
More than 1000 inquiries were received for our 11 strong (national) sales portfolio, from local investors and Asian markets.
“The childcare market in SA is an emerging market and is attracting widespread attention, particularly from Melbourne investors looking for sharper yields.
“The yields for the sales in Murray Bridge and Hahndorf are eclipsing other states averaging over 6 per cent.
SA is also the only state that will introduce zero stamp duty for commercial property assets from July 1, 2018.
Investors have recognised this opportunity and are actively seeking low yield commercial assets to add to their portfolio.”
Mr Thomas said rather than waiting for the final, one-third, local drop in stamp duty which comes into effect on July 1, investors were pouncing on solid SA assets now.
“It’s more about the return on investment, investors are looking for long-term set income.
For the right investment, zero stamp duty is good but investors will pay $50,000 (if need be) to get what they want,” he said.
“Stamp duty will have an effect but they are not going to be sitting on their hands and waiting. They are looking to do more transactions.
“The figures for investors to purchase in SA are very compelling with stamp duty at about 5 per cent in other capital cities. Rents per child in SA average around the low $2000 mark, compared to Melbourne which is above $3000.”
A new childcare subsidy is expected to be introduced by the federal government shortly.
A 2017 Burgess Rawson Childcare Report highlights that sales yields have compressed from a median 7.75 per cent in 2010 to 5.75 per cent in 2017, across metropolitan and regional locations.
These investments generally range in price from $1 million to $10 million with incomes starting from about $70,000 per annum for small regional assets.
“Childcare properties are seen as set and forget assets with a low-risk profile with an upside,” said Burgess Rawson’s Natalie Couper.
“They are on large areas of land in high built-up areas (averaging 2500s qm) and quality tenants pay all of the outgoings and rents are guaranteed by the federal government.
“The structure of leases is often over 10 years with options to extend by 10 to 20 years so offering security.”
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Originally written by Richard Evans, Adelaide Advertiser