How do property investments work?

A property investment isn’t restricted to just buying a house and renting it out. In fact, there are other options outside of directly owned investments that can offer you access to property without having to spend the large sums of money often associated with buying one directly. These options involve you pooling your money with other investors to buy units into a fund or trust.

If you aren’t buying a property directly, these investments can be otherwise accessed within super (depending on your super fund’s allocation to different investments), or outside of super through a listed or unlisted fund or real estate investment trust (known as a REIT):

• Listed property investments in a fund or REIT are listed on the share market. This makes them more liquid – that is, more easily traded and converted into cash. However, share markets can also fluctuate regularly, making these investments higher risk.
• Unlisted property investments can work in a similar way. However, these investments are not listed on the share market, meaning the fund or trust may not have an official, regulated marketplace for trading. You may also be required to hold these investments until the fund is wound up, meaning they are less liquid and therefore more difficult to trade.
• Both listed and unlisted funds can be single-sector funds (invested in one sector of the property market, like retail) or diversified funds (invested across multiple property sectors) – investing in a range of assets, such as shopping malls, medical centres and hotels across a range of sectors, such as residential, retail, office and industrial property (to name a few).
  

There are risks associated with all investments, including property. For example:

• Share markets fluctuate regularly for a number of reasons – influenced by factors such as economic developments, wars, civil unrest, pandemics and even the weather. This means that the value of property investments listed on share markets can rise and fall in a similar way to shares – making them potentially more volatile.
• While investors in unlisted property investments may benefit from not being exposed to share market fluctuations, these investments also don’t have a regulated marketplace for trading. This could potentially make their values less transparent as prices are determined not by markets, but by investment professionals managing the fund or trust. Because unlisted property investments don’t have an official trading place, they may also be harder to buy and sell – meaning, investors may need to hold them until the fund is wound up.
• Tenants of direct property investments may be unable to pay rent – potentially impacting the owner’s rental income and ability to meet to their mortgage repayment requirements.
  

Both listed and unlisted property investments have the potential to offer attractive, risk-adjusted returns over the long term – typically through rental income that is paid to investors of a fund or trust through regular distributions. Returns from a direct property investment can also come through rental income that may be paid either directly to the owner, or via a real estate agency managing the property on the owner’s behalf.  

What you choose to invest in will depend on a number of factors, such as your age, life stage, personal circumstances and the advice you might receive from a financial adviser. An investor may consider fixed interest investments like bonds for their traditionally defensive, conservative nature – particularly if the investor is older, approaching retirement and/or seeking capital preservation.