Property schemes
Investing in listed and unlisted property
schemes
A property scheme allows you to buy 'units' in an investment
operated by a professional investment manager.
Unlisted property schemes have some important differences from
listed property schemes. This webpage helps you understand the
risks so you can work out whether they are right for you.
What is a property
scheme?
A property scheme, also known as a property fund or property
syndicate, is an investment where you, and other investors, buy
'units' in an investment operated by a professional investment
manager. The scheme's money is invested in property assets which
may include commercial, retail, industrial or other property sector
assets.
The investment manager selects and buys investment properties
and is responsible for maintenance, administration, rental
collection and improvements to the properties.
Your money usually stays in the property scheme until it ends,
when the properties are sold and the net proceeds are distributed
to investors.
You may be able to withdraw your money early but there may be
penalties. If the scheme is listed, you may be able to sell your
units on the public market.
Depending on the type of property fund you invest in, you might
get a regular income (distributions), usually quarterly or
half-yearly, and a capital gain on your original investment, if the
value of the scheme's underlying investment assets increases.
Some property schemes invest in property development, which
means there are extra construction and development risks.
Listed versus unlisted
property schemes
Listed property schemes
Commonly referred to as property trusts or real estate
investment trusts (REITs), property schemes listed on a public
market, such as the Australian Securities Exchange (ASX), are:
- easier to value as you can see what each unit is worth at any
point in time
- easier to sell if you no longer want the investment
- subject to market listing rules
Unlisted property schemes
An unlisted property scheme is not listed on a public market,
such as the ASX. This means:
- units are not priced daily so you can't see whether the value
of your investment is going up or down
- it's not subject to ongoing supervision by a market supervisor,
such as the ASX
- it can be difficult to get out of an unlisted property scheme
if you want to withdraw your money early
- if you are allowed to withdraw your money, it is usually
subject to strict conditions and there may be fees payable.
What to look for in the
product disclosure statement
The product disclosure statement (PDS) tells you how the
property scheme works so you should read it in full.
Smart tip
It is essential to read the PDS of a property scheme to find out
the features, fees, risks and who is managing the trust.
Concentrate on the sections that:
- explain the features and risks of the investment
- tell you about the fees you will pay
- provide information on who will be managing the trust
- give you details on how the fund compares to ASIC's benchmarks
and disclosure principles to help you assess the risks.
ASIC's benchmarks and
disclosure principles
ASIC has developed six benchmarks and eight disclosure
principles for unlisted property schemes to help you assess the
main risks. They will help you decide if you are comfortable with
the investment, and compare the risks between different unlisted
property schemes.
Benchmarks and/or disclosure principles to look for include:
- Gearing - What the property scheme owes (its
debts) as a proportion of what it owns (its assets) and the
investment manager's policy on gearing at an individual credit
facility level.
- Interest cover - How comfortably a property
scheme's income (before interest and tax) will cover any interest
it pays on loans and the investment manager's policy on interest
cover at an individual credit facility level.
- Interest capitalisation - Whether the interest
expense of a property scheme is capitalised, and if it is, how the
scheme will meet its borrowing repayment obligations.
- Scheme borrowing - When the property scheme's
debts must be repaid and the risks associated with the maturity of
the loans.
- Portfolio diversification - The number, value,
sectors and locations of the properties the scheme is investing
in.
- Valuation policy - The investment manager's
valuation policy describes how and when the property scheme values
its underlying assets.
- Related party transactions - The investment
manager's policy on related party transactions, and the number and
value of loans, investments and other transactions the investment
manager has with related parties, for example, the developer or
scheme promoter.
- Distributions - The investment manager's
practices for paying distributions, how your income payments are
generated, and whether they are sustainable.
- Withdrawing from the scheme - Whether you can
withdraw from the scheme and under what conditions.
- Net tangible assets - A calculation of the
scheme's net tangible asset backing per unit and what this means to
an investor.
Read ASIC's investor guide and regulatory guide
ASIC's investor guide Investing in
unlisted property schemes has more useful information about
these investment products.
You should also read ASIC's regulatory guide, RG 46
Unlisted property schemes: Improving disclosure for retail
investors to find out the key information the investment
manager should disclose to you so you can assess the
risks.
All investments carry some risk. ASIC's
disclosure principles and benchmarks are not a guarantee that an
unlisted property scheme will perform well. It is important that
you understand the key risks before you invest. Get professional advice from a licensed
financial adviser if you're not sure what to do.
Related links
Last updated: 15 Oct 2018
