More than residential
A-REITs may not be as exciting as a rental property but they're a lot less headache and can offer far better value for investors with a passion for bricks and mortar.
Australians have always been keen property investors but we often don't look past the residential market despite the downsides of low liquidity and significant transaction costs.
The steady returns delivered by Australian Real Estate Investment Trusts (AREITs) are a reminder that there's more to property than houses and apartments; and there are flexible options beyond direct ownership.
Considerable diversity
Ron Hodge, Managing Director, InvestSMART.com.au says, "Broadly, AREITs focus on the commercial property market though within this asset class investors enjoy considerable choice and diversity."
As a guide, some AREITs focus on market segments like hotels and resorts. Others offer diversity across a variety of sub-sectors like retail properties as well as office space.
Clearly it's a very different type of property from a suburban home, and Hodge points out "the underlying trust portfolio is also likely to be further diversified by geography, tenant type and lease tenure."
Tax deferred components
Low interest rates have benefitted AREITs, and the S&P ASX 300 AREIT has notched up 5-year gains of 9.86% - slightly more than the 5-year returns of 9.13% for the S&P ASX 100 AREIT. (Returns to 4 March 2014). Notably, AREIT distributions can feature tax deferred components.
For a passive exposure to the broader Index, Vanguard's Australian Property Securities Index aims to replicate the S&P ASX 300 AREIT.
While listed AREITs are a low cost means of adding commercial property to a portfolio, Hodge notes that by their nature, they are exposed to the vagaries of the broader stock market. He says, "That can make unlisted property trusts a potentially less lively alternative especially for investors with significant exposure to the ASX."
Frequently Asked Questions about this Article…
Australian Real Estate Investment Trusts (AREITs) are investment vehicles that focus on the commercial property market, offering investors a way to gain exposure to real estate without directly owning property. They provide a diverse range of options, including investments in hotels, resorts, retail properties, and office spaces.
AREITs offer a less hands-on investment experience compared to residential property, with fewer headaches related to property management. They provide steady returns and greater liquidity, avoiding the significant transaction costs associated with buying and selling residential properties.
Investing in AREITs offers several benefits, including steady returns, tax-deferred components in distributions, and exposure to a diverse range of commercial properties. They also provide a low-cost way to add commercial property to an investment portfolio.
Yes, listed AREITs are exposed to the broader stock market's fluctuations, which can impact their performance. However, they still offer a stable investment option compared to direct property ownership.
AREITs invest in a variety of commercial properties, including hotels, resorts, retail spaces, and office buildings. They offer diversity across different market segments and geographic locations.
AREITs have shown strong performance, with the S&P ASX 300 AREIT achieving 5-year gains of 9.86% as of March 2014. This performance slightly surpasses the 5-year returns of 9.13% for the S&P ASX 100 AREIT.
The Vanguard Australian Property Securities Index is designed to replicate the performance of the S&P ASX 300 AREIT, providing investors with passive exposure to the broader index of Australian real estate investment trusts.
Unlisted property trusts can be a less volatile alternative to listed AREITs, especially for investors with significant exposure to the ASX. They are not subject to the same stock market fluctuations, offering a potentially more stable investment option.
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