SERVICES

INVESTMENT SCHEMES

A property scheme is where you buy ‘units’ in an investment run by a professional investment manager. They pool your money with that of other investors and invest it in property assets. These may include commercial, retail, or industrial assets.
The investment manager selects and buys investment properties. They are responsible for maintenance, administration, rental collection, and improvements to the properties. Some schemes invest in property development, which means there are construction and development risks.
Depending on the type of scheme you invest in, you might get a regular income (distributions). These may be paid quarterly or half-yearly. You may also get a capital gain on your investment if the value of the scheme’s underlying assets increases.

LISTED VERSUS UNLISTED PROPERTY SCHEMES

Listed property schemes

These are also called ‘property trusts’ or ‘real estate investment trusts’ (REITs). Property schemes listed on a public market, such as the Australian Securities Exchange (ASX), are:

Easier to value, as you can see what each unit is worth at any point in time
Easier to sell if you no longer want the investment
Subject to market listing rules

Unlisted property schemes

An unlisted property scheme does not list on a public market. This means:

You can’t easily see whether the value of your investment is going up or down
It’s not subject to ongoing supervision by a market supervisor, such as the ASX
It can be difficult to get out of if you want to withdraw your money early
If you can withdraw your money, it may be subject to strict conditions and fees

HOW TO ASSESS THE RISKS OF PROPERTY SCHEMES

Investment managers for unlisted property schemes must report on benchmarks set by ASIC, and disclose how the property scheme meets them. If the scheme does not meet these, they must explain why and how this affects risk.

Listed property schemes do not have to report on these benchmarks, but they can still provide a good checklist to assess the scheme’s risk.

To check how risky a property scheme is, look at:

Gearing

What the scheme owes (its debts) versus what it owns (its assets). Look for the investment manager’s policy on gearing for each loan it has

Interest Cover

Can the scheme meet its interest payments from its earnings? Look for the investment manager’s policy on interest cover for each loan it has.

Interest Capitalisation

For scheme loans, if it pays interest during or at the end of the loan period (capitalised). If it is capitalised, how the scheme will be able to repay the interest and capital.

Scheme Borrowing

The key terms on any loan and when the scheme must pay its debts.

Portfolio Diversification

The number, value, sectors, and locations of the properties the scheme is investing in.

Valuation Policy

How and when the property scheme values its underlying assets.

Related Party Transactions

The number and value of loans, investments, and other transactions the scheme has with related parties. Look for the investment manager’s policy on related party transactions

Distributions

If the scheme pays distributions from income received. If not, how it pays income payments and whether they can continue long term.

Withdrawing From The Scheme

Whether you can withdraw from the scheme and under what conditions.

Net Tangible Assets

The scheme’s net tangible asset backing per unit and what this means to an investor.

INVESTING IN UNLISTED PROPERTY SCHEMES

Read ASIC’s investor guide on benchmarks and property scheme risks.

https://files.moneysmart.gov.au/media/5ovidfvf/investing-in-unlisted-property-schemes-old-branding.pdf