Property by xiuliliaofz


                          Historical Returns
                        Comparatively high rate of return
              Market risk equivalent to Bonds for listed property
            Market risk equivalent less than Bonds for direct property

                           Average ROR                  Standard Deviation

Australian Shares          13.2%                        11.5%

Australian listed          13.3%                        4.2%
Australian direct          11.2%                        2.0%
Australian Bonds           7.4%                         4.3%

Cash (money market)        5.5%                         0.6%
Participants in property market
   Investors as owners
   Tenants who live in or use premises for
    commercial purposes
   Valuers, Brokers & Agents who facilitate the
    smooth operations of the markets
   Financial institutions who arrange finance
   Solicitors & Conveyors who do the conveyancing
    thus managing the transfer of titles after
    successful sales
Sectors of the Property Market
   Residential Property
   Commercial property
   Industrial Property
   Hotels & resorts
   Rural Property
Residential Property
       Ease of purchases transaction
       Spread in sizes of investments
       Ease with which loans may be arranged to gear investments
       Usually relatively short time to contract with a tenant and start to
        derive rental income
   Disadvantages:
       Poor quality of tenants
       R&M
       Turnover of tenants is usually accompanied by vacancy &
        therefore no rental income
       Too high a concentration of property in a small portfolio
Commercial & Industrial Property
 May include stand-alone premises, premises in
 strip shopping centres or large commercial
 shopping centres

 Stand- alone and strip shopping premises are
 often owned by individuals and corporations,
 whereas large shopping centres are more often
 held by insurance companies and many investors
 through both property trusts and superannuation
Rural Property
   Most farms are run by the owners as
    business and generally returns approx 1%
    on invested capital therefore not particularly
    attractive investment proposition
Probable Property Returns
Type             Rental Returns   Price volatility     Liquidity

Small            Med- High        Med-low, depending Very low
commercial       (3-10% net)      on position

Residential      Med- Low         Med-low              Low
(flats, units,   (3-6% net)

Farms            Land is seldom   Med-low, depending    Very low
                 separated from   on markets or seasons
                 the business)
Taxation of Property
   Rental Income from property is assessable
    income for tax purposes
   Legitimate expenses such as borrowing
    expenses, interest, rates, depreciation, agent
    commissions are all deductible expenses
   Gains from the sale of property are subject to the
    Capital Gains Tax Regime, with the exception of
    the primary place of residence
   50% discount applies to gain where property held
    for more than 12 months
Accessing Property Markets
   Most investors use the services of Real
    Estate Agents of Brokers
   Real estate agents usually charge for their
   Charges vary but may comprise of 5% on
    the first $18000 of the sale price + 2.5%
Matching investors to products
   Property appeals to investor because:
       Tangebility
       Familiarity
       Property values generally keep pace with inflation.
        Therefore unless investors are forced to sell during a
        downturn in the property cycle, they are likely to retain the
        purchasing power of their funds and can make large
        capital gains
       Suits investors who can tolerate moderate risk
       Suits investors looking for medium rates of return
       Suits investors who have a medium-to long-term
        investment horizon
Investment Options
   Direct Property Ownership
   Listed Property Trusts
Investment Options
Investment Options used to invest in property
     Listed Property Trusts;
     Unlisted Property Trusts;
     Property Syndicates;
     Diversified Property Securities Fund; and
     Direct Property Ownership
Property trusts
   Property trusts aim to generate rental income from a portfolio of
    professionally selected properties with good tenants on long leases,
    along with some capital growth in the value of those properties.

   Property trusts can specialise in particular sectors – such as retail
    or industrial property – or they can be ‘diversified’, investing in
    various types of property.

   They can be listed or unlisted. The advantage of investing in a trust
    listed on the stock exchange is that you should be able to sell part
    or all of your holding quickly – something that’s not so easy with
    your own bricks and mortar. But, like any investment, nothing is
Listed Property Trusts
   Listed property trusts suit investors who are looking for consistent income and the
    potential for long-term capital growth from a liquid property investment

   LPT managers invest in a portfolio of investment grade commercial real estate to
    generate high yielding returns for investors, and buy and sell properties in line with
    their investment strategy.

    LPTs are viewed as a substitute for direct property investing, with enhanced
    liquidity. They are the only property funds publicly traded on the ASX, with the first
    trusts listing in the early 1970s
   Australia’s model for LPTs is a recognised world leader. From less than $5 billion in
    the early 1990s, the sector reached a market capitalisation of $43.8 billion in August
    2002, invested in property assets of $62.6 billion

   The LPT Index is the sixth largest sector on the ASX, accounting for 7.2 percent of
    the S&P 300 Index. Real estate (LPTs and Developers) is the third largest sector.
Listed Property Trusts
   The largest LPT managers are Westfield, Lend Lease, AMP
    Henderson Global Investors, Macquarie Bank and ING.
   A leading Australian stockbroker, UBS Warburg, estimates
    that 50 percent of Australia’s investment-grade real estate is
    in the hands of LPTs.
   The quality of these assets is high, with 65 percent of the
    nation’s regional shopping centres and many of the prime
    commercial office buildings held in LPTs.

   LPTs are represented by retail with $22 billion in assets,
    followed by commercial office with $11 billion in assets,
    industrial with $3 billion in assets and hotels with $1 billion in
How to invest in LPTs
   You can buy into LPTs from as little as $1000.

   In addition, some LPTs may allow you to reinvest distributions via a
    Dividend Reinvestment Plan (DRP).

   LPTs can only be bought and sold through a stockbroker once they are
    listed on the ASX.

   If it is a new listing of a property trust, you will need to obtain a prospectus
    from the fund manager.

   When you buy and sell LPTs you will pay fees to the stockbroker and
    stamp duty at the rate set in each state for financial transactions. These
    transaction costs are lower than similar costs incurred by individual
    investors in direct property.

   Annual management fees are payable to the LPT fund manager, where
    there is an external manager, and can be expressed as a percentage of
    assets under management.

   On average, annual fees are likely to be in the range of 0.3 percent to one
    percent of assets under management.
Risks and Returns of LPTs
   Report prepared by ASX in Sept 2006
    showed LPT returns for the previous 12
    months ranged from -15.5% to +87.4%
Unlisted Property Trusts
    Unlisted property trusts provide secure long term income streams to an
    investment portfolio with the potential for capital gains through price

   Funds are pooled with other investors to purchase large direct properties, a
    manager then collects the rent and disperses it to the investors, or unit

   Unlisted trusts are only opened for a short period, similar to a share market
    float. They seek to raise a specific amount of money and once this is raised
    the offer closes.

   The features of the trust will vary, however most have these common
         7-10 year investment
        distributions monthly or quarterly
        high yield of approximately 9.0% per annum
                      Property syndicates
   Property syndicates provide retail investors with an opportunity to invest in direct property.

   Property syndicates are unlisted fixed-term property trusts that aim to provide the risk and return
    characteristics of direct property investments.

   The syndicates aim to provide investors with investment opportunities that will provide a mix of
    income and capital returns from professionally managed large-scale property assets

    Property syndicates raise funds from investors to purchase a specific property - although in
    some syndicates more than one property may be offered.

   The syndicate manager may underwrite the syndicate offer or make the initial property purchase
    to ensure that there will be sufficient funds raised from investors to meet the purchase cost.

   Typical properties are in the $20 - $30 million range.

   The majority of property syndicates, 54 percent, invest in the retail property sector. More recently,
    property syndicates have offered office and industrial properties – commercial office syndicates
    account for 30 percent, with the remainder largely in industrial properties.
                  Property syndicates
   Property syndicates are structured to provide an annual income for
    investors, the yield, with the property sold and the capital returned to
    investors at the end of the syndicate’s life. This is usually a period of five to
    seven years
   Syndicates will look to manage the property to maintain its value and may
    invest in the expectation of capital growth.
   Typically distributions are paid to investors on a quarterly or half yearly
    basis. There is a trend towards quarterly distributions in new offerings.

   The current generation of property syndicates generally allows some
    flexibility to the syndicate manager as to when the property will be sold by
    including options for an early or limited late wind-up in the prospectus given
    to investors.
   The direct property syndicate sector is significantly advanced in the
    establishment of the world’s first property exchange. This will allow
    investors to trade their holdings in a formal secondary market, which has
    not been previously available.
of Property Syndicates
    The performance of property syndicates – yield and growth –
    varies from syndicate to syndicate and by property sector.
    Management quality is considered critical to performance.
   By way of comparison, the average first year yields on
    property syndicates in the year to December 2001 of over
    nine percent compare favourably with 10 year bond yields of
    5.5 percent.

   Investors in property syndicates are investing for the medium
    term, not unlike residential property investing.
How to invest in property syndicates

   Each property syndicate is offered publicly to investors to subscribe to by
    prospectus, and is then closed to new investors.
   The minimum investment is set by the property syndicate manager, but typically will
    be $5000 or $10,000 on average.
   Property syndicates commonly charge establishment fees, annual fees and an exit
    fee, typically subject to meeting a performance benchmark. Establishment fees can
    range between four and five percent of the purchase price of the property.
   The annual fees may be expressed as an MER, typically in the range of 0.6 to one
    percent. Or annual fees may be expressed as a percentage of the property value
    and income – ranging between 0.2 and 0.5 percent of the value of the property, plus
    two to four percent of the property income.
   Exit fees may depend on the syndicate performance. They can be between two and
    four percent of the final value of the property, depending on the extent of the growth
    in the capital value of the property.
   Managers of property syndicates may allow you to exchange your investments if this
    becomes necessary. There is no obligation on the manager to buy back; hence
    investors should expect to remain in the syndicate for the full term.
Property securities funds

   The growing popularity of LPTs,has led to the development of
    managed funds that specialise in investing in LPTs (as other
    funds do in shares or bonds). These are known as property
    securities funds.
   Some of these funds also allocate a proportion of their money
    to unlisted property trusts as well as LPTs.
   The theory is that property securities funds diversify your
    investments and reduce your risk even further.
   Another variation on the theme is the geared property
    securities fund, where managers use borrowed funds as well
    as investors’ money to buy properties, with the aim of
    boosting returns to investors.
Direct Property Ownership
   Direct Property ownership has many attractions.
   Property can be less volatile than shares – though not always
    – and it tends to be regarded as a safe haven when other
    assets are declining in value.
   It has the potential to generate capital growth (an increase in
    the value of your asset) as well as rental income.
   There are tax advantages associated with negative gearing
   However, as with any investment, there are no guarantees.
    Property prices go down, as well as up, and sometimes
    tenants are hard to find – especially good ones who pay on
    time and take care of your investment.
Potential return
   Capital growth
   Capital growth is the increase in the value of directly owned
    property over time and is one of the main reasons people
    invest in residential real estate.
   Historically, Australian residential property has experienced
    strong capital growth – the long-term average annual growth
    rate for property is about 9 per cent – but periods of
    stagnation and even decline are also part of the picture.
   The nature of the property cycle means real estate should
    probably be thought of as an investment with a 10-year
Potential return
   Rental Income & Yield

   An important measure is a property’s yield. That can be calculated by
    dividing the annual rent it generates by the price you paid for the property
    and multiplying that by 100 to get a percentage figure.

   Let’s say you bought a unit for $400,000 and rented it out for $350 a week
    (or $18,200 a year). That’s a yield of 4.5 per cent. That might compare with
    a dividend yield of, say, 7 per cent had you invested in a particular
    company’s stock.

   But let’s say you bought a worker’s cottage in a mining town where prices
    are low but the rental income as good as in the big city. Pay $350,000 and
    rent the property out for $600 a week and you’ll achieve a yield of 9 per

   Remember, yields fall as house prices rise (if rent doesn’t rise
Negative gearing

   Gearing basically means borrowing to invest.
   Negative gearing is when the costs of investing are higher
    than the return you achieve. With an investment property,
    that’s when the annual net rental income is less than the loan
    interest plus the deductible expenses associated with
    maintaining the property (such as property management fees
    and repairs).
   When you’re negatively geared you can deduct the costs of
    owning your investment property from your overall income –
    reducing your tax bill.
   High-income earners benefit the most, because they’re in the
    top tax bracket.

To top