Gameplan to investing in Property Scheme
If you are planning to invest in property scheme but you don’t know how and where to start. First, let's define property scheme.
A property scheme involves purchasing 'units' in a professionally managed investment that pools money from multiple investors and invests it in property assets. It's important to note that there are both listed and unlisted property schemes, each with its own set of risks to consider before making a decision.
Investment managers are responsible for selecting and purchasing investment properties, as well as maintenance, administration, rental collection, and making improvements. Some schemes invest in property development, which comes with construction and development risks. Depending on the type of scheme, investors may receive regular income and capital gains.
Before investing in a property scheme, it's important to read the product disclosure statement (PDS) or Information Memorandum (IM) which outlines how the investment works, its features and risks, the fees that will be charged, and who will be managing the trust. It's recommended to seek advice from a licensed financial adviser if you require assistance in understanding property schemes.
Property schemes can be either listed or unlisted. Listed property schemes, also known as property trusts or real estate investment trusts (REITs), are traded on public markets and have clear values and easier liquidity but are subject to market listing rules. Unlisted property schemes, on the other hand, are not publicly traded, which means it may be difficult to track the performance of the investment, as there is no easy way to determine whether its value is rising or falling. Additionally, it is not subject to ongoing supervision by a market regulator. Secondly, exiting the investment early can be challenging and may be subject to strict conditions and fees.
Investment managers of unlisted property schemes are required to report on benchmarks established by ASIC and disclose how the property scheme satisfies them. In the event that the scheme fails to meet these standards, they must provide an explanation of the reasons and how this impacts the risk. While listed property schemes are not obligated to report on these benchmarks, they may still serve as a useful checklist to evaluate the risk associated with the scheme.
There are various factors to consider when assessing the risks of property schemes. These include the scheme's gearing policy, interest cover policy, borrowing terms, diversification of its portfolio, valuation policy, related party transactions, distribution payments, withdrawal conditions, and the scheme's net tangible asset backing per unit.
By taking these steps and evaluating the various factors to understand it and seek advice from licensed professionals, you'll be able to determine which property scheme is the right fit for you.
Source: https://moneysmart.gov.au/property-investment/property-schemes