How to invest in property without dealing with renters and repairs
In times of uncertainty it is human nature that we return to the familiar, to what we know we can trust. And for many Australian investors, this often means property.
A tangible asset we can see and feel, you don't need specialist skills or knowledge to appreciate the intrinsic value of property.
Given the publicity that daily stock market movements receive, it's no surprise many people believe equities to be our most important investment market. In fact, the $2 trillion invested in listed stocks in Australia is dwarfed by our $8 trillion property market.
While past performance is not a reliable indicator of future performance, the property market is not only far larger but often more resilient than shares.
In Australia this year, the Australian Securities Exchange (ASX) 200 plummeted from a bull market into the fastest bear market in its history, losing almost 40% in value as it dropped to above 4400 points in March, before swinging back to bull again in just a matter of weeks to eventually finish down 11% for 2019-20 financial year, its worst performance since 2008-09.
While the ASX 200 has remained relatively flat from July to September 2020, experts are divided on what it may do next. The ASX 200 sat at 5815.90 points as at September 30, 2020.
Although the Australian property market has not been completely unaffected by the economic turbulence of the COVID-19 pandemic, the response to date has been far more subdued.
For example, CoreLogic's home value index dropped 0.1% over the month of September, but remains comfortably ahead for the year, with 4.8% growth.
Australian home values moved through a fifth month of health crisis-induced falls, CoreLogic says, but the rate of decline but September marked a striking turn in housing market sentiment, consumer confidence increased, new listings rose, and six of eight capital cities recorded rising values.
Predictions for the future of property values vary, but CoreLogic's head of research, Tim Lawless, says there are a number of factors that are supporting improved housing marketing conditions.
"The aggregate effect of low mortgage rates, and the prospect that rates could fall further, low inventory levels, government incentives and improving consumer sentiment seems to be outweighing the negative economic shock brought about by the pandemic," Lawless says.
Of course, housing is not the only component of the property market, which comprises commercial, industrial and retail as well as residential sectors, each of which may perform very differently over time.
Property investment options
Purchasing an investment property directly is not the only way to invest in bricks and mortar.
In addition to high entry and exit costs such as stamp duty, legal fees and estate agents' fees, managing an investment property and its tenants can be a time-consuming business.
An alternative option to direct property ownership is a mortgage trust or property trust, managed by a professional fund manager.
Australia's $15 billion mortgage trust sector has long been popular with investors looking for competitive investment income as part of a diversified portfolio. In 2020, as economic uncertainty has soared and returns from investments such as dividends and bank savings have continued to shrink, the sector has provided a genuine alternative.
Like all investments, these options have their own risks but if you're looking to diversify part of your investment portfolio and earn a competitive return, these alternative property investments could be worth your consideration.
Reviewing detailed product information, researching the various market offerings and seeking advice from a licensed financial planner are three ways to determine if a mortgage trust or property trust is worth considering as part of a diversified investment portfolio.
Learn more about investing in Trilogy's range of mortgage trusts, diversified income funds and property trusts.
This article was prepared by Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy) and does not take into account your objectives, personal circumstances or needs nor is it an offer of securities. Application for investment in the relevant product can only be made on the application form accompanying the Product Disclosure Statement (PDS) available at www.trilogyfunds.com.au. The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including those with Trilogy, involve risk which can lead to loss of part of or all your capital or diminished returns. Trilogy is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed adviser to conduct an analysis based on your circumstances. Investments with Trilogy are not bank deposits and are not government guaranteed.