Investing in Australian Property Trusts

The last year and a half has been a tumultuous time for investors, especially those with assets in listed and unlisted property trusts. When the tightening in credit markets became apparent in early 2008, many investors were quick to offload their exposure and sell their investments. As a result, unit prices plummeted, as did overall investor confidence in the sector.

Many investors are now understandably wary about listed and unlisted property trusts following the slashing of valuations (up to 90 per cent in some cases) that occurred at the height of the financial crisis. However, with the economic outlook more positive and trust valuations reduced to more reasonable levels, is there a case for considering listed and unlisted property investments within your portfolio?

Investing isn’t without risk, but property trusts can be a great way of obtaining property exposure within your portfolio. They can also be a sound alternative to purchasing a rental property—thereby avoiding the hassle of dealing with property managers and finding suitable tenants.

Some key advantages of property trusts

1. Liquidity: When investing through a property trust you can generally sell down the asset (or a portion of your holding) in a few days if you need the cash. With a physical rental property, selling can take some time and can incur additional fees. Also, a physical rental property usually needs to be sold in its entirety even if a partial cash amount is required to be released; selling off part of the home is rarely an available option.
2. Accessibility: You can access these investments with only a few thousand dollars due to your investment monies being pooled with other investors. This pooling of funds enables you to invest in a property or a selection of properties that would have been out of reach if you were investing solo.
3. Opportunity for both income and capital growth: Property trusts receive a rental income stream from the underlying tenants of the commercial properties that make up the trust, which subsequently flows onto the underlying trust investors. This rental income is often locked in for several years at a time and is commonly subject to CPI adjustment.
   
   The constant revenue stream from a property trust is an especially positive characteristic for retirees who are often most in need of a stable and regular income. Also, opportunities exist for capital growth to occur in the investment through future upwards revaluation of the underlying assets that comprise the trust’s portfolio.
   
4. Diversification opportunities: You can invest domestically or internationally, in sectors such as commercial office blocks in prominent urban and regional centres, industrial property (factory bays or business parks), as well as in retail shopping centres and pubs/hotels and theme parks.
   
   
5. Tax advantages: Investors receive tax-free and tax-deferred income. Tax-deferred income occurs when depreciation allowances associated with the trust’s property flow through to the underlying investor. This reduces the investor’s tax cost base for capital gains tax purposes.

Speak to us today to further discuss your property investment strategy!