As 2018 draws to a close with continued volatility in global equity markets, consistent returns and solid long-term growth are becoming increasingly difficult to find. Steven Hall, Head of Direct Property at Australian-based fund manager Charter Hall, proposes Direct Property as an asset class that may fill that bill.
Direct Property (also known as Real Property) includes real estate investments across all property sectors either owned directly, or indirectly through collective vehicles such as trusts, funds, and pooled investment syndicates Typical investors in this asset class range from individuals and SMSF trustees to high net worth and wholesale equity investors.
As well as offering exposure to high quality investment grade property that individuals would not ordinarily have the capital to purchase themselves, one of the key benefits of investing in this asset class is that it provides strong income return – historically between 5.5% and 7% per annum – and some capital appreciation over the medium to long term.
As with all investments, you need to do your research before investing in Direct Property. Choosing the vehicle that is best aligned with your own investment needs and performance goals is vital.
Structures vary from product to product. For example, listed funds offer better daily liquidity but can be more volatile, whereas unlisted funds tend to be both less volatile and less liquid. The product’s mandate is another key consideration. Some invest in a specific type of property, be it residential, retail, commercial or industrial. Others diversify across the board. Each of these sub-sectors has their own risk-return profile that needs to be kept in mind when choosing which product is right for you.
Some other important components of the decision-making process for investments in this asset class include a product’s gearing levels, the quality, and location of its assets, and the stability of its tenants; macroeconomic concerns such as inflation, interest rates, and supply and demand, and how they might affect property values and sales prices; the timeframe of your investment horizon and how an investment in Direct Property sits within your overall portfolio.
In addition to the product-specific suitability mentioned above, Mr Bennett suggests you look for the following attributes when seeking out a Direct Property manager:
- track record and level of expertise;
- proper accreditation;
- market exposure and risk management; and
- a clear exit strategy.
As always, you should consider obtaining professional advice before making any such investment.