
Most read
‘Optimistic borrowers’ could endanger housing market, RBA says...
‘Optimistic borrowers’ could endanger housing market, RBA says...

Latest Podcast
Home values up 30% (or are they); NFTs taking the world by storm, and why Keatin...
Home values up 30% (or are they); NFTs taking the world by storm, and why Keatin...

Resources
There is $17.5 billion in lost and unclaimed super across ...
There is $17.5 billion in lost and unclaimed super across ...
Invest
Listed property versus unlisted property: an investor's guide
Australians who have been squeezed out of the housing market but are still after investment exposure to property might find the answer in listed or unlisted assets, but what’s the difference and what should you look out for?

Listed property versus unlisted property: an investor's guide
Australians who have been squeezed out of the housing market but are still after investment exposure to property might find the answer in listed or unlisted assets, but what’s the difference and what should you look out for?

While most Australians think of buying their first home or owning an investment property when it comes to real estate, these aren’t the only ways to invest in property.
“Property historically has been a good source of income and it’s certainly enjoyed renewed popularity as investors continue on the global hunt for income,” Cromwell Property Group head of retail funds management Hamish Wehl told nestegg.com.au.
“Property valuations have risen in that time and the competition out there is strong so there’s no shortage of equity but it’s important to find the right assets to deliver the right risk-adjusted returns because valuations have been stretched in some places,” he said.
Two possible ways investors can benefit from the available incomes streams is to buy into listed and unlisted property, both of which carry their own set of advantages and disadvantages.
Listed property is a pooled investment you can buy in via the ASX, while unlisted property is usually owned directly in a trust and held for an extended period. But how do they measure up?
Here's a quick discussion of the differences between listed and unlisted property
Listed property
Also known as A-REITS, or Australian real estate investment trusts, you can invest in listed property much like you would in equities.
“They’re ASX- listed securities and they then own an asset or, more often than not, a portfolio of assets,” Mr Wehl said.
“Listed property is the way to get liquid property exposure for a very small minimum investment. You can trade on the market through a stockbroker or CommSec and get exposure to those stocks which then own an underlying property portfolio.”
When investing in REITs, it’s important to be conscious of the wider sector they’re operating in.
REITs can be used to gain exposure to different sectors, including residential, healthcare and mortgages.
“Usually they’re sector specific, for example retail trusts such as Westfield, industrial trusts such as Goodman Group, and then you have pure office players such as iOS, as well as property stocks like Mirvac and Stockland groups,” Mr Wehl said.
In the same way that these are easily traded on the ASX, they’re also vulnerable to the same risk exposures.
“The data shows those stocks are highly correlated to the broader equities market so if the stock market happens to fall 20 per cent, more than likely those property stocks are going to fall as well,” Mr Wehl said.
While their very nature make REITs exposed to share market risk, it also ensures a certain level of liquidity.
“You can sell on the stock market on any given day and check the price of your investment. If you have to sell following a downturn on the stock market, you might not be happy with the price but there’s still a market there,” Mr Wehl said.
In a low-interest environment, where traditional income-producing investments such as bonds and term deposits may not be performing, REITs can provide a good alternative for investors.
Unlisted property
"In the unlisted funds space, there are things called syndicates which are closed, back to basics trusts where there will be one asset or a number of assets in a single trust and it’ll be managed on behalf of investors for a fixed duration, and those trusts will pay distributions to investors,” Mr Wehl said.
“The key difference to the unlisted side is you’re getting direct exposure to those assets and there are a variety of structures from a simple unlisted closed-end trust where you pool a number of investors together, up to an unlisted trust regulated by ASIC or an unregulated wholesale trust.”
Unlike REITs, an unlisted property trust isn’t listed on the ASX, and its exposure is vastly different.
“You’ll buy an asset or a number of assets where investors get direct exposure to those assets. They’ll get the rental income that’s derived from those assets and the valuations rise or fall from those assets,” Mr Wehl explained.
“There’s no other noise that goes on within the structure. It’s not like you wake up one day and the stock market’s fallen 10 per cent and all of a sudden your unit price is 10 per cent less.”
However, while listed property remains an easy-to-sell investment, unlisted property carries set time frames.
“With the unlisted, it might be monthly, quarterly or yearly redemption for open-ended funds or it might be a set term, such as seven years holding,” Mr Wehl said.
When looking at unlisted REITs, there are a few important things to consider.
“You want a really long lease term, good quality tenants, and you want reasonably low gearing, maybe around 20 per cent,” Mr Wehl said.
“With a tenant, it’s all about security of income stream so particularly looking for government tenants and high-chip tenants with a strong balance sheet, so you know they’re going to pay their rent monthly on time and that are reliable.”
Investors should also look for long leases that exceed the duration of the trust.
“The right property for a syndicate is a good quality building with a very long lease term that extends well beyond that trust term so when you go to sell it, it’s still attractive to buyers as it has a long lease tail,” Mr Wehl said.
“If you’re trying to sell it with only a two- to three-year lease term at the end of your trust term, it limits the number of buyers and potentially can expand your terminal yield.”
Another type of trust might be made up of smaller rotating tenants to avoid relying too heavily on a single tenant.
“A multi-let property is where you have what is called ‘tenant churn’, which may put off some people but if you have one tenant that leaves and only makes up a small per cent of income, it doesn’t leave a big hole in earnings,” Mr Wehl said.
“Instead, you have a constant churn of tenants where they come and go and you don’t have one making up 50 per cent where if they leave, you get reduced distribution and need capital to refurbish property etc.”
However, unlisted property is not without a level of risk.
“Where current valuations are, we see terminal risk value. If a fund buys something today where cap rates are well below long-term averages and you lock someone in, you run the risk that you won’t be able to return that capital at the end of seven years if those yields or cap rates return to long-term averages,” Mr Wehl said.
And the winner is…
Rather than one being more advantageous than the other, each carries its own exposures, risks and benefits.
“There’s a whole myriad of ways to get exposure to property. and listed and unlisted property are ways of diversifying as well,” Mr Wehl said.
“A lot of advisers and clients will hold a listed exposure to property as well as an unlisted exposure, because the unlisted side often has a higher income yield pays monthly, isn’t as volatile and gives more of a direct exposure whereas the security side is vastly different again.”
While the property fund industry suffered a crisis of confidence post-GFC, Mr Wehl said there was a silver lining.
“After the GFC, some people would hear the words ‘property fund’ and their eyes would roll back and they wouldn’t have any part of it, but there have been lessons learned from it,” he said.
“The gearing has since been brought into check so you don’t see the aggressive 60 to 70 per cent gearing on open-ended funds that there was during that time. The quality of assets has also improved and managers in general have been cleaned up," he said.
“It really brought in the quality of managers in play today and has delivered good returns for investors, while popularity has been brought back by low interest rates.”
Ultimately, for investors looking to gain broad exposure to the property market and an alternative income stream, going beyond direct property versus listed property is necessary. It may be wise to consider having both listed and unlisted property in your portfolio.

Property
Policy failures see houses become unattainable for young Australians, minister says
Australia’s booming house prices are the result of the government’s failed policies, with the younger generation now unable to afford what their parents could, a minister has said. ...Read more

Property
House prices to grow by 25% over 3 years
New research is predicting a large gain in property prices of around 25 per cent through to the end of 2023, driven mainly by low interest rates. ...Read more

Property
Strict cap on short-term rentals delayed following criticism
Following widespread criticism from councils and online rental companies, the introduction of NSW’s planned holiday rental code of conduct has been pushed back by three months. ...Read more

Property
Melbourne becomes Australia’s 2nd most affordable rental market
While most capital cities saw house rents soar to new record highs over the first quarter of 2021, Melbourne continued to lag behind – becoming the second most affordable capital city to rent in Aus...Read more

Property
Why home buyers are now more open to high-priced properties
Buyers are more likely to spend more to secure a property as their preferences shift towards bigger spaces with higher price tags, recent data has shown. ...Read more

Property
Government brushes aside RBA’s debt blowout warning
The government said it is not concerned about the RBA’s warning that the financial system could be rocked if there’s a debt blowout, in fact it is “very pleased” that confidence levels are lea...Read more

Property
Have first home buyers been pushed out of the market?
Latest figures have shown a monthly decline of over 3 per cent in first home buyer activity, but levels still remain at their highest since 2009. ...Read more

Property
‘Optimistic borrowers’ could endanger housing market, RBA says
The Reserve Bank of Australia has issued a caution, noting that optimistic borrowers could lead to a deterioration in the quality of lending, increasing the risk in the housing market. ...Read more

Home values up 30% (or are they); NFTs taking the world by storm, and why Keating thinks Aussies will be ‘poor’ in retirement
Listen now

Raging floods, the tech stock bubble and the ongoing SG debate
Listen now

Meet the Manager with Trilogy’s Philip Ryan: RBA rates and property price growth
Listen now

The continued property boom, ethical investing and engaging with your super fund
Listen now

Property
Policy failures see houses become unattainable for young Australians, minister says
Australia’s booming house prices are the result of the government’s failed policies, with the younger generation now unable to afford what their parents could, a minister has said. ...Read more

Property
House prices to grow by 25% over 3 years
New research is predicting a large gain in property prices of around 25 per cent through to the end of 2023, driven mainly by low interest rates. ...Read more

Property
Strict cap on short-term rentals delayed following criticism
Following widespread criticism from councils and online rental companies, the introduction of NSW’s planned holiday rental code of conduct has been pushed back by three months. ...Read more

Property
Melbourne becomes Australia’s 2nd most affordable rental market
While most capital cities saw house rents soar to new record highs over the first quarter of 2021, Melbourne continued to lag behind – becoming the second most affordable capital city to rent in Aus...Read more

Property
Why home buyers are now more open to high-priced properties
Buyers are more likely to spend more to secure a property as their preferences shift towards bigger spaces with higher price tags, recent data has shown. ...Read more

Property
Government brushes aside RBA’s debt blowout warning
The government said it is not concerned about the RBA’s warning that the financial system could be rocked if there’s a debt blowout, in fact it is “very pleased” that confidence levels are lea...Read more

Property
Have first home buyers been pushed out of the market?
Latest figures have shown a monthly decline of over 3 per cent in first home buyer activity, but levels still remain at their highest since 2009. ...Read more

Property
‘Optimistic borrowers’ could endanger housing market, RBA says
The Reserve Bank of Australia has issued a caution, noting that optimistic borrowers could lead to a deterioration in the quality of lending, increasing the risk in the housing market. ...Read more