The Case for Unlisted Property

The case for unlisted property

Reproduced from the Financial Standard, 15 June 2015, Volume 13 Number 11.  Source: Centuria

 

Today, unlike the GFC days, the market is characterised by fewer, larger managers with scale, experience, best practice governance and strong track records.  Most unlisted funds now have clear fixed terms, identifiable voting hurdles, minimum internal rates of return before performance fees can be charged and no ‘poison pill’ fees.

Debunking unlisted property myths

Despite the clear objective advantages to making the right unlisted property investment, there remain a number of common misconceptions that advisers must be able to address if they are to help clients make the best investment choices.

Myth 1: There is no transparency about investment unit price

While unlisted property trusts do not price units daily in the way that listed trusts do, underlying properties are regularly independently valued (usually at least annually), according to a pre-determined schedule, and unit prices reflect these values.

In addition, because investment in an unlisted property trust requires committing money for a certain period of time, often between 5 and 7 years, short term movements in the unit prices is less important.  Investors are not able to crystallise their investment until the end of the fixed term.

Myth 2: Unlisted property trusts are not subject to regulatory supervision

Unlisted property trust are subject to the usual laws regulating investments and are closely supervised by ASIC.  Over the last two years ASIC have instigated a number of positive regulations to improve the sector’s governance and make it more transparent for investors.

Myth 3: Managers of unlisted trusts don’t communicate with investors

While it’s true that unlisted trust managers don’t have the same strict communication requirements as their listed counterparts, the reality is that investors now place high importance on transparent, regular communication from unlisted managers.  ASIC recently instigated RG 46 regulations which mean managers must report to investors every six months on a range of fund metrics including debt funding, NTAs and any conflicts of interest.

Transparency is the essential ingredient of good communication.  Investors should expect and receive complete transparency regarding fees and management structures, as well as the composition of the assets in the fund.  Gone are the days of the so-called ‘blind funds’, in which investors were unaware of the actual assets of the fund and had to rely solely on the manager’s assertions as to their quality.

Myth 4: Once you invest you lose control of your capital because the managers decide when to sell

Again, this is not strictly true.  Yes it can be difficult to get your money out if you need to withdraw before the agreed term however, most managers will attempt to find other investors in the fund to buy your stake.  This is not always possible.  That’s why an unlisted property trust is not the right investment for everyone.

It is vitally important to choose a manager that gives investors certainty about the investment term and the circumstances under which an investment might be sold.  This is an important initial step in assessing the appropriateness of the investment.

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