Property schemes

Investing in listed and unlisted property schemes

A property scheme allows you to buy 'units' in an investment operated by a professional investment manager.

Unlisted property schemes have some important differences from listed property schemes. This webpage helps you understand the risks so you can work out whether they are right for you.

What is a property scheme?

A property scheme, also known as a property fund or property syndicate, is an investment where you, and other investors, buy 'units' in an investment operated by a professional investment manager. The scheme's money is invested in property assets which may include commercial, retail, industrial or other property sector assets.

The investment manager selects and buys investment properties and is responsible for maintenance, administration, rental collection and improvements to the properties.

Your money usually stays in the property scheme until it ends, when the properties are sold and the net proceeds are distributed to investors.

You may be able to withdraw your money early but there may be penalties. If the scheme is listed, you may be able to sell your units on the public market.

Depending on the type of property fund you invest in, you might get a regular income (distributions), usually quarterly or half-yearly, and a capital gain on your original investment, if the value of the scheme's underlying investment assets increases.

Some property schemes invest in property development, which means there are extra construction and development risks.

Listed versus unlisted property schemes 

Listed property schemes

Commonly referred to as 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 is not listed on a public market, such as the ASX. This means:

  • units are not priced daily so you can't 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 an unlisted property scheme if you want to withdraw your money early
  • if you are allowed to withdraw your money, it is usually subject to strict conditions and there may be fees payable.

What to look for in the product disclosure statement

The product disclosure statement (PDS) tells you how the property scheme works so you should read it in full.

Smart tip

It is essential to read the PDS of a property scheme to find out the features, fees, risks and who is managing the trust.

Concentrate on the sections that:

  • explain the features and risks of the investment
  • tell you about the fees you will pay
  • provide information on who will be managing the trust
  • give you details on how the fund compares to ASIC's benchmarks and disclosure principles to help you assess the risks.

ASIC's benchmarks and disclosure principles

ASIC has developed six benchmarks and eight disclosure principles for unlisted property schemes to help you assess the main risks. They will help you decide if you are comfortable with the investment, and compare the risks between different unlisted property schemes.

Benchmarks and/or disclosure principles to look for include:

  • Gearing - What the property scheme owes (its debts) as a proportion of what it owns (its assets) and the investment manager's policy on gearing at an individual credit facility level.
  • Interest cover - How comfortably a property scheme's income (before interest and tax) will cover any interest it pays on loans and the investment manager's policy on interest cover at an individual credit facility level.
  • Interest capitalisation - Whether the interest expense of a property scheme is capitalised, and if it is, how the scheme will meet its borrowing repayment obligations.
  • Scheme borrowing - When the property scheme's debts must be repaid and the risks associated with the maturity of the loans.
  • Portfolio diversification - The number, value, sectors and locations of the properties the scheme is investing in.
  • Valuation policy - The investment manager's valuation policy describes how and when the property scheme values its underlying assets.
  • Related party transactions - The investment manager's policy on related party transactions, and the number and value of loans, investments and other transactions the investment manager has with related parties, for example, the developer or scheme promoter.
  • Distributions - The investment manager's practices for paying distributions, how your income payments are generated, and whether they are sustainable.
  • Withdrawing from the scheme - Whether you can withdraw from the scheme and under what conditions.
  • Net tangible assets - A calculation of the scheme's net tangible asset backing per unit and what this means to an investor.

Read ASIC's investor guide and regulatory guide 

ASIC's investor guide Investing in unlisted property schemes has more useful information about these investment products.

You should also read ASIC's regulatory guide, RG 46 Unlisted property schemes: Improving disclosure for retail investors to find out the key information the investment manager should disclose to you so you can assess the risks. 

All investments carry some risk. ASIC's disclosure principles and benchmarks are not a guarantee that an unlisted property scheme will perform well. It is important that you understand the key risks before you invest. Get professional advice from a licensed financial adviser if you're not sure what to do. 

Related links

Last updated: 15 Oct 2018