Warning that properties with high yields carry high risk in current downturn

Richard Wakelin, founder of Wakelin Property Advisory, has suggested properties with high yields tended to be more vulnerable than other properties to economic shocks, not less.

“They are often located in areas that struggle economically in the best of times due to a limited and narrow economic base and contain tenants who are more susceptible to bouts of unemployment,” he wrote in his latest Fairfax Media column.

“Consequently, in downturns, there is a serious risk of rent arrears and extended vacancies that can bleed dry an investor’s cash reserves and capital values that fall harder than elsewhere.” 

Those properties essentially have high yields as compensation for the high risk the properties present, he warned.

“In these less certain times for property, I would much prefer to see a risk-averse prospective investor sit on the sidelines than opt for a high-yielding asset,” he suggested before adding over the long term, sitting on the sidelines and not buying growth assets was a material risk to future retirement prospects.

He suggested few are able to “time the market” and buy at the bottom.

“So put aside the market cycle.

“Invest when you have the means,” the Melbourne buyers’ agent suggested.

Noting most capital city residential property markets are slated for little or even negative capital growth in coming months, Wakelin rebuked the suggestion that the promise of some income make high-yielding properties was the least bad asset to hold in a time of decline.

They were not the property market’s equivalent of the equity market’s unglamorous but safe defensive utility stocks that pay a significant dividend twice a year.