Investing in Property
Types of property investment
Basically there are two ways to invest in property market: direct and indirect. Direct property investment is mainly purchasing the real property either residential or commercial directly. Indirect property investment includes property trusts (listed or unlisted) and property syndicates.
Pros and cons
Property is a tangible asset. Even when the property market does not perform well and prices drop, you still own the property which in itself has intrinsic value. Therefore the potential loss from property investment is relatively foreseeable and certain. Property investment has its tax benefit comparing with investing in shares/securities. The risk level for investing in property is somewhere between defensive assets (such as fixed interest and cash equivalents) and shares/securities.
Real property can provide a higher leverage exposure than shares/equities when investors want to acquire a loan. However investing in real property can be too expensive to be affordable for some individual investors, especially when investors are thinking of investing in a commercial property. The required time frame for investing in real property (residential) is normally considered as 5-7 years in Australia.
Property trusts require low entry cost for investors who wish to get involved in property market. Listed property trusts are highly liquid as investors can trade the “units” they hold anytime during the trading hours. As property trusts “units” are trading in Securities Exchange, the price movement is relatively volatile.
Property syndicate is simply a group of investors pool their capital together as a fund to develop a property, e.g. a block of residential properties, shopping center, industrial property, etc and lease out, and then sell after a couple of years. The investors are expecting the initial investment capital back upon the selling of the property in the end as well as their share of profits from the entire investment.
Property is simply an investment choice for investors based on their personal preference, risk appetite, investment time frame, financial goals, etc, or even for diversification purposes.
There is no specific reason why investors should or should not invest in properties. When time comes, it happens.