Direct property is the term commonly used to describe real estate investments, whether it be the purchase of a commercial, industrial, retail, bulky goods, residential or any other property asset, which can either be held directly (direct ownership on the title) or indirectly through collective ownership vehicles such as managed property investments: funds, trusts and syndicates (Property Funds). Investors in Direct Property Investment Funds, including those offered by large institutions, public and private companies, are wholesale and retail (Mum and Dad) investors.
Over the last two decades, Direct Property Investment has grown dramatically and has become a core investment class for the growth of wealth through strong risk adjusted returns, while also providing a stable source of income through regular distributions of underlying rental income.
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Property Funds can either be listed or unlisted. Those which are listed on a securities exchange ie (ASX) are commonly called Australian Real Estate Investment Trusts (A-REITs). The units in the Property Trust are regularly traded, providing liquidity. Unlisted Property Funds generally do not have a market place for the trading of units.
An unlisted Property Fund usually consists of a unitised structure, with a fixed investment term and transparent investment purpose. The structure can either be open–ended meaning that the Fund Manager can continuously raise new money at any time (through the issue of new units) for the purchase of additional assets for the investment portfolio, or closed-ended (no more units can be issued) with a fixed and defined investment period in which money can be raised (typically 6 to 12 months). Returns from unlisted Property Funds are typically less volatile for investors compared to A-REITs and are known for providing a consistent inflation-linked income stream.
Investors in A-REITs, where units are listed on a stock exchange for trading, are able to determine the current market value of their investment and trade those units in the open market place. As a result, this investment, although liquid, can be far more volatile than unlisted vehicles meaning its value can fluctuate both up and down more readily.