Direct Property

Most Australians have some property investment – typically their own home or a house or unit which they have bought. If the property is the principle home, then the hope is that the property will rise in value over time (capital growth). For investment properties investors get the benefits of both income (rent) and hopefully capital growth.

Direct property has historically provided investors with attractive returns and low volatility when compared with other investment classes.

Australian investors value direct property for the following reasons:

  • Stability of Property, with relatively low volatility and natural inflationary hedge characteristics. Property rents tend to increase in line with inflation;
  • Strong Tax Advantages are available from property which significantly improve investors after-tax returns;
  • Portfolio Diversification Benefits, Direct property is an essential part of any balanced investment portfolio. It is the only major asset class that has historically tended to move in different cycles to other main asset classes. This means that by including direct property in an investment portfolio, investors may benefit from the reduced risk that comes with diversification;
  • Capital Stability, Direct property is based on underlying property valuations and has shown more stable capital returns than listed property which has displayed a similar level of volatility to equities over the last ten years.

Direct Property investments can broadly be made into two of types of property.

Commercial Property Investment – which have 3 main types of investment;

  • Offices: consisting of suites, high rise and commercial centres.
  • Retail Properties:  everything from the local shops, small shops in strips on major roads, all the way up to large shopping centers.
  • Industrial: Warehouses and factories, frequently in outer suburbs where large amount of land is cheaper to acquire.

Residential Property Investment, this encompasses investing in houses, units, apartments, town houses and semi-detached dwellings.

For many investors in Australia investing in property has an appeal. However, before you go ahead and add a commercial property investment or residential property investment to your portfolio, you should know the characteristics of these properties and the benefits. This will help you to make an informative choice about which type will suit your financial goals.

Commercial, retail and industrial properties have different characteristics from residential property, in general they are likely to have a higher income yield, but may actually have lower capital growth than residential property.

In residential property investment tenants are typically signed up for 6 or 12 months. In commercial property, these periods are frequently longer, 3 – 10 years. If a commercial property becomes vacant, it may have a significant gap between tenants this can be months or even years.


A-REITs (Listed Property)

An Australian Real Estate Investment Trust (A-REIT) is a unitised portfolio of property assets, listed on a stock exchange, usually the Australian Stock Exchange (ASX).

A-REITs (Australian real estate investment trusts) give investors access to property assets.

The major benefit of A-REITs is that they can provide access to assets that may be otherwise out of reach for individual investors, such as large-scale commercial properties. A-REITs may appeal to investors looking to diversify their portfolio into property with potential to receive a regular and consistent income stream.

A-REITs are designed to generate wealth in two ways: they provide exposure to the value of the real estate assets that the trust owns and the accompanying capital growth, as well as rental income.

The fund manager selects the investment properties and is responsible for all administration, improvements, maintenance and rental.

While each A-REIT will have its own of characteristics, the properties selected are usually diversified across regions, lease lengths and tenant types. Some A-REITs specialise in particular sectors, and usually fall into one of the following categories:

  • Industrial trusts invest in warehouses, factories, and industrial parks
  • Office trusts include medium- to large- scale office buildings in and around major cities
  • Hotel and leisure trusts invest in hotels, cinemas and theme parks
  • Retail trusts invest in shopping centres and similar assets
  • Diversified trusts invest in a mixture of industrial, offices, hotels and retail property.


General Advice Disclaimer

This information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Professional Investment Services (PIS) Authorised Representative before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Professional Investment Services nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.