Martin Hawes: Buy into the real business

Commercial property yields more than residential. Photo / NZ Herald

There is now little doubt that taxation rules for residential property investment will change and that we will not see another residential property boom for a while.

With rental yields low and little prospect of capital gain, many people are looking for better investments.

Speculators and traders may make a bit of money but serious investors know the current shortage of listings means it is a good time to leave the market..

Our default setting has been to invest in finance companies and residential property because they are not hard to understand: finance companies were small banks and residential property is just like our own homes.

It took a crash to teach us that investing in small, unregulated banks, was not a good idea.

And many people are about to learn that the returns on housing pale when compared with real property investment, which is commercial property.

No one knows whether commercial property will be brought into the same tax rules as residential property .

But whether it is taxed more heavily or not, commercial property works quite differently from residential property and makes a much better and more profitable investment.

It has higher yields and is generally bought and sold on the basis of those yields rather than whim and fashion, as is often the case with housing.

Management of commercial property is easier and, on the whole, tenants are better to deal with.

But commercial property often requires much more money than we may have. The solution is to buy into property trusts, many of which are excellent investments and tax-efficient.

While the 1987 sharemarket crash is still a painful memory, the conditions and lack of regulation that led to it are gone.

Shares will always be a volatile investment but for long-term investment, even with the ups and downs, it is hard to beat buying into a business.

* Martin Hawes is a financial adviser. His disclosure statement can be found at www.martinhawes.com