Foundations of Property Introduction to the property industry - - PowerPoint PPT Presentation

Foundations of Property

Introduction to the property industry Tanya Steinbeck, CEO, UDIA WA

What is an asset class?

• A category of investments that exhibit similar characteristics

in the marketplace.

• The investments within a single asset class are expected to:
• have similar risks and returns
• be subject to the same laws and regulations
• perform in a similar manner in particular market conditions.
• Each different asset class is expected to:
• reflect different risk and return characteristics
• perform differently in different market conditions.
• There are four main types of asset classes, each categorised into either

defensive or growth.

Asset class Characteristics Risk Potential return

Defensive assets

(generating income)

Cash

includes bank deposits, term deposits, savings and cheque accounts and cash management trusts

Suitable for investors who have a short term outlook, a low tolerance to risk, or if market volatility is high. Provides a stable and low risk income, usually equally in the form of regular interest payments. No recommended minimum timeframe. Low Low

Fixed Interest

includes government bonds, corporate bonds, mortgages and hybrid securities

Can be more volatile than cash, but are still relatively stable. Generally operate in the same way as a loan. Income return is usually in the form of regular interest payments for an agreed period of time. Minimum suggested time frame: 1 – 3 years Low/ Moderate Moderate

Growth assets

(capital growth and income)

Property

includes direct investments in residential, industrial and commercial property and can also include indirect investment in listed property vehicles such as REITS

Has a higher risk than fixed interest but less risk than equities. Less liquid than other asset classes resulting in a higher recommended minimum timeframe. Entry and exit costs significantly higher. Minimum suggested timeframe: 7+ years Moderate/ High Moderate/ High

Equities

includes Australian equities and International equities

Returns usually include capital growth or loss and income through dividends which may be franked (ie the company has already paid tax on the earnings). The most volatile asset class but over long periods of time, on average, has achieved higher investment returns. Involves part ownership of a company, enabling investor to share in the profits and future growth. Currency valuations can affect performance of International equities. Minimum suggested timeframe: 5 – 7 years High High

Source: Australian Investors Association

Property as a wealth creation in investment

• Real estate investment trusts (REITs)
• Residential
• Commercial office
• Retail
• Industrial

Source: Property Council of Australia

Real Estate In Investment Trusts (A (A-REITs)

• A unitised portfolio of property assets, listed on the Australian Stock Exchange

(ASX). They are an alternative to direct property investment and can be used to provide portfolio diversification.

• A REIT is a diversified and professionally managed portfolio of real estate assets

that enables investors to access a property portfolio which may include commercial, industrial, retail or a mix of these real estate assets which would not

• therwise be available to the individual investor.
• REITs may either invest in property locally in Australia or internationally. Investors

can gain the benefit of any increase in value in the underlying asset and from regular rental income generated from the properties owned.

Source: Australian Investors Association

Real Estate In Investment Trusts (A (A-REITs)

• A-REITs are designed to generate wealth in two ways: exposure to the value of the

real estate assets that the trust owns and the accompanying capital growth, and rental income.

• The fund manager selects the investment properties and is responsible for all

administration, improvements, maintenance and rental.

• While each A-REIT will have its own of characteristics, the properties selected are

usually diversified across regions, lease lengths and tenant types. Some A-REITs specialise in particular sectors, and usually fall into one of the following categories:

• Industrial trusts invest in warehouses, factories, and industrial parks
• Office trusts include medium- to large- scale office buildings in and around major cities
• Hotel and leisure trusts invest in hotels, cinemas and theme parks
• Retail trusts invest in shopping centres and similar assets
• Diversified trusts invest in a mixture of industrial, offices, hotels and retail property.

Source: ASX

Residential property

In Investing in in tr traditional residential

(apartments, la land and house and la land)

Pros Cons Low volatility Valuation Taxation High capital costs Capital growth Liquidity Long term Costs Demand Locality risk Mining Interest rates Rent increases Negative gearing

Source: UDIA WA

Commercial property

Retail property

In Industrial property

Source: Savills

Foundations of Property

Introduction to the property industry Tanya Steinbeck, CEO, UDIA WA