You may have heard about property trusts, but what are they and what benefits do they offer investors?
Property trusts are a great way for investors to access property assets, either commercial or residential, but in a different structure from direct property ownership.
Property trusts can either be listed, meaning they are traded as shares on the Australian Securities Exchange, or unlisted, meaning they are held by investors and there is no public market.
Property trusts are generally offered in two forms, either wholesale or retail, with the latter being offered less frequently because these demand more onerous compliance requirements.
Typically, investors will buy units in a trust with the number of units they hold proportional to their interest in the property.
For example, if the trust had 5 million units at $1 each and you owned 250,000 units you effectively own 5% of the property.
However, investors are not on the property title – the trustee of the trust holds the property on behalf of the unit holders.
Investors can buy their units in their choice of tax vehicle (i.e. under their own name, self-managed super fund, discretionary trust or company).
Commercial property trusts generally pay distributions to investors on a quarterly basis while the property is held and then a final payout of the gain once the property is sold.
For example, if you own 5% of the units on offer, as in the example above, you would receive a 5% share of the rent returns and 5% on the sales proceeds when the property is sold.
Issues relating to a trust can be voted on by investors as provided for in its constitution and voting rights will be proportional to the amount of each investor’s interest.
Property trusts are a great way for investors to gain exposure to high-quality property assets which they may not be able to afford on their own.