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.
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."