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Writer's pictureMeridian Australia

The benefits of diversifying your Australian real estate portfolio



One of the core principles of investing in Australian property is diversification. Some investors focus on a specific property type or geographic location, which can work well. But, a diversified real estate portfolio offers stability, mitigates risks, and increases opportunities for long-term returns. No matter where you are on your investment journey, it’s a strategy worth considering, but be sure to consider its advantages and potential drawbacks.


What does diversification in property investment mean?


Brad Wearne, General Manager at Meridian Australia, explains that diversification is about spreading your investments across different types of assets or within different sectors of the same asset class to manage risk and maximise returns. “For property investors in Australia, this means varying investments across residential, commercial, and industrial properties or expanding into different geographical regions, like urban centres, regional towns, or emerging growth areas,” he says.



The advantages of diversifying your real estate portfolio


1. Risk Mitigation

   Diversification acts as a safety net. Investing in various property types and locations makes you less exposed to market downturns that might affect a single segment. “If your portfolio includes both residential apartments in Brisbane and commercial spaces in Sydney, for example, an economic dip in one market might not impact the other as severely,” Brad advises. “This strategy helps smooth out returns over time, which is particularly valuable during more volatile periods.”


2. Greater opportunity for returns

   It’s important to remember that the Australian property markets are not uniform; each city and region can experience growth cycles at different times. While Sydney and Melbourne have traditionally been hotspots, areas like South-East Queensland, especially Ipswich, are emerging as attractive alternatives thanks to current and future planned infrastructure growth and strong rental demand. Brad suggests that by diversifying, you can capitalise on growth in multiple markets rather than rely on the performance of a single region.



3. Improved cash flow stability

   Different property types offer differing patterns of cash flow. According to Brad, residential properties are renowned for providing stable, predictable returns due to consistent rental demand, while commercial properties may offer higher yields but with longer vacancy periods. “If you hold a blend of both, you’ll create a more balanced cash flow, which can help sustain your investment goals over the long term,” he says.


4. Access to a variety of tax benefits

   There are certain property investments that come with specific tax benefits. Residential investments can allow deductions for things like depreciation and property management fees, while commercial properties can offer additional deductions related to leasehold improvements or fixtures. You’ll potentially be able to access a broader range of tax advantages that may not be available if you’re focused on a single type of property.


5. Leveraging different market conditions

   Different market forces influence each property type and location. “The demand for office spaces, for example, is often tied to the economic health of the business sector, while residential demand is closely linked to population growth and housing affordability,” Brad explains. “A diversified portfolio allows you to adjust to changing market conditions, so you benefit from the strengths of different sectors at various times.”


The disadvantage of diversifying your real estate portfolio


1. Complexity and increased management efforts

   One downside of diversification is that it can complicate the management of your portfolio. Different property types often require specialised knowledge. “Managing an industrial property is totally different from leasing residential units,” Brad warns “ Also, you need to consider the different local regulations, market dynamics, and tenant preferences when managing properties across different regions.”


2. Higher initial capital outlay

   When you diversify your portfolio across property types or locations, a substantial upfront investment is often needed. According to Brad’s experience, commercial and industrial properties, mainly, can demand higher initial costs than residential properties. New investors should carefully consider if their current financial resources can support a diversified portfolio, particularly in a high-value market like Australia.


3. Potential for lower short-term gains

   Diversification is about spreading risk, which can result in slower, steadier growth rather than immediate, high-yield returns. If you want to maximise short-term gains, a diversified portfolio might not provide the aggressive growth you’re after, particularly during periods where one market segment significantly outperforms another.


Why diversification is worth exploring




Even with its drawbacks, diversification remains an intriguing strategy for many. A well-diversified portfolio can boost resilience, which is vital in a property market as dynamic as Australia’s. Brad reflects on the period of the COVID-19 pandemic when residential rental demand surged in some areas as people moved away from city centres, while commercial spaces saw reduced demand. “We found that investors with a balanced mix of assets were able to offset potential losses and navigate these shifts more comfortably than those heavily invested in one area or type of real estate,” he says.


How we can help you make the most of your portfolio diversification 



At Meridian Australia, we believe that diversification isn’t about chasing trends but more about aligning with your long-term investment goals. Our extensive analysis methodology ensures that each property we recommend fits into a broader strategy tailored to our client’s specific needs. Whether you’re looking to expand into high-growth urban markets or explore the untapped potential of regional Australia, our team of experts have the insights and experience to guide you through each decision.


Ready to explore your options? 


Book a call with one of our experts today to chat about the options to diversify your portfolio and find investments that work for you now and in the future.




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