EXPLORING PROPERTY FUNDS – A VIABLE ALTERNATIVE TO PHYSICAL PROPERTY & REITS?

Owning a physical property is good but entails a lot of expenses and big capital outlay. How viable are property funds instead?

PROPERTY AS AN ASSET CLASS

Relative to cash, bonds and stocks, property represents a medium risk investment potentially offering medium returns in the range of 6% to 8% p.a. over the longer term. Property can be used to achieve capital growth or income, or a combination of the two. Growth seeking investors should go for a horizon greater than five, possibly even 10 years relative to income seeking investors.

In this article, we will focus on the physical property funds, which manage a portfolio of individual properties and try to achieve returns by collecting rental yields and by capital appreciation of the underlying assets. A great advantage to an investor in comparison to owning an actual unit is that there are no day-to-day management issues, and there is a larger number of properties included such as residential buildings, shopping centres and warehouses so in that sense the risk is typically reduced.

Trading shares in a fund takes anything between a few days and a couple of months, whereas this isn’t the case with the physical assets. The legal side of owning a stake in a fund is more straightforward and there are no costly lawyers, banks and agents involved, whilst the returns are quite comparable. Often there can be tax benefits too.