A property fund pools investors’ money, which a professional investment manager puts into property assets; the investor holds units in the fund rather than a property. Interests in a managed investment scheme are financial products on ASIC’s licensing page, and Moneysmart says the investment manager must give investors a product disclosure statement.
General informationThis page summarises Moneysmart’s guidance on property funds, not advice about any fund or whether one suits anyone. Moneysmart’s property funds page is the place to check, and ASIC’s professional registers list registered schemes and licensees.
What a property fund is
Moneysmart uses property fund and property scheme as broad names for property trusts and real estate investment trusts (REITs), and describes them as investments in commercial, retail or industrial property. A fund is either listed on a public market such as the ASX, or unlisted.
The investment manager chooses and buys the properties and looks after maintenance, administration, collecting rent and improvements. Some funds invest in development, which brings construction and development risk with it. Depending on the fund, an investor may receive regular income, called distributions and often paid every quarter or half-year, and may make a capital gain if the underlying assets rise in value.
That is the difference from the first band of the core. Moneysmart’s hub page puts it plainly: a fund lets you invest in property without buying or managing one yourself. What the investor owns is a stake in a scheme, and a scheme is the kind of thing an AFS licence covers.
Listed and unlisted, side by side
| Feature | Listed funds | Unlisted funds |
|---|---|---|
| How you buy in | On a public market, such as the ASX, bought and sold in the same way as shares. | Directly from the fund, which is not listed on any public market. |
| Seeing what a unit is worth | The value of each unit can be seen at any time. | It is harder to tell whether the investment is rising or falling in value. |
| Who watches over it | The fund must meet the listing rules of the market it trades on. | No ongoing oversight by a market supervisor such as the ASX. |
| Getting money out | Easier, because units trade like shares. | The fund’s rules may lock money in for a period; where withdrawal is allowed, strict conditions and fees may apply. |
| ASIC’s benchmarks | No duty to report against them, though Moneysmart says they still make a useful checklist. | The manager must report against benchmarks set by ASIC, and explain why and how risk is affected where the fund falls short of one. |
The disclosure statement
Moneysmart says the investment manager must give investors a PDS, which explains how the scheme works, and points to three things to read for in it: the investment’s features and risks, the fees, and who will run the trust.
It adds three questions for deciding whether a fund might suit: the risks it lists, when money can be withdrawn and whether a deferral period applies, and how the unit price is worked out and whether that can change. For the fund’s performance against the benchmarks, it points to the fund’s annual report, usually on the fund’s website.
Moneysmart’s wider guidance on investment offers points the same way. It says to get the official documents, such as a PDS or a prospectus, before investing, and treats an offer that comes with no official documents at all as a red flag. For a pooled property investment, the PDS is the document that sets out what the investor is buying into, who runs it and what it costs.
Moneysmart’s checks, in four groups
Moneysmart turns the benchmark subjects into a checklist of ten items for judging a fund’s risk. Grouped here by what they test, in our own words; its page has each item in full.
The fund’s debt
Four of the checks look at borrowing. Gearing compares what the fund owes with what it owns, and Moneysmart notes that a heavily indebted fund feels more strain when interest rates rise. Interest cover asks whether earnings meet the interest bill; a fund that cannot manage it from earnings may have to sell assets to repay its loans. The other two ask whether interest is paid as it falls due or rolled into the loan for later, and what each loan’s key terms and deadlines are.
The properties and their value
Diversification looks at how many properties the fund holds, what they are worth, which sectors they are in and where. The valuation check asks how and how often the assets are valued, and Moneysmart wants that done regularly by suitably qualified experts. Net tangible asset backing per unit can be pulled about by fees, capital raising costs and other expenses, and Moneysmart says it can strongly affect returns.
Dealings with insiders
Related party transactions, the loans, investments and other dealings a fund has with parties connected to it, show how it manages conflicts of interest. Moneysmart suggests reading the manager’s policy on them alongside the numbers.
Money coming out
For distributions, the question is whether they are paid from income the fund actually received; payments drawn from other sources than cash from operations carry their own risk. For withdrawals, Moneysmart notes that not every fund allows them, and that even early or short-notice withdrawal can mean a wait for the money.
Moneysmart closes its page by suggesting professional advice from a licensed financial adviser before investing in a fund. Under ASIC’s rules, that is an adviser who holds an AFS licence or is authorised by someone who does.