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How do property investments work?

There are many asset classes you can choose from – including listed, unlisted and direct property investments, which we explore below.

  • A property investment isn’t just restricted to buying a house and renting it out – in fact, you can access other kinds of property investments without taking out a mortgage to buy one outright.

    Now, you can pool your money with other investors to buy units in a professionally managed fund which holds a number of property investments.

    This can give you access to a range of property types across a range of sectors – from shopping malls and hotels, to medical centres and office spaces.

    Property funds can invest in property that is either listed on the share market or owned directly.

    Listed property funds can more easily buy and sell investments, which means they can take advantage of changing market conditions. However, this can also make them more exposed to share market fluctuations – meaning their values can change from day to day.

    Property funds that invest directly into property are less able to change their investments. But as these investments are not listed, their values are likely to be more stable and less volatile over time.

    You will find that over time, your super balance fluctuates depending on the different funds your super is invested in and the risk associated with different investments.

    It can help to speak to a financial adviser when considering your investment options.
    Wherever you stand on investments and super, we’re here to help you get to where you need to be. Click through for a more detailed explanation of property investments.

What are property investments?

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.

How can you access these investments?

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).

What can impact property investments?

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.

How do property investments generate returns?

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.  

Why invest in property?

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.

Disclaimer

Information on this webpage is provided by Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) and Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL). It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the Target Market Determinations (TMD) for our financial products at www.cfs.com.au/tmd, which include a description of who a financial product might suit. You should read the Financial Services Guide (FSG) available online for information about our services. This information is based on current requirements and laws as at the date of publication.

Tax considerations are general and based on present tax laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.

AIL and CFSIL are not registered tax (financial) advisers under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise under a tax law.