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Level: Intermediate

Property and your super

Investing in property for the everyday Australian is often just about buying a house. However, through your super (via a diversified option such as Growth or Balanced), you are likely to be investing in all sorts of different properties from office buildings through to industrial warehouses.

Australians are well known for being obsessed with property. We get it. It’s always satisfying to invest in something you can see and touch - plus who doesn’t love to scroll through the Domain app?

Many super investment options will invest in property for similar reasons that people might choose to purchase an investment property. Property is considered a growth asset as it is expected to grow in value over time and potentially offers higher returns than you might get from earning interest on cash in a bank account.

Property can generate returns from:

Bar and line graph

Capital growth

The value of your property potentially increases over time

Contributions

Income

In the form of tenants paying rent

Two arrows creating a circle

Development profit

Develop or renovate property to increase its value

One of the key challenges of investing in property is the high barrier to entry as property is expensive. Even saving enough for a deposit to get a loan can be very difficult. Fortunately, superannuation funds like Rest have the size and funds to make property investments on behalf of our members.

At Rest, we group our property investments into two main categories:

Unlisted property

Most of Rest’s property investments are ‘unlisted’. Think large residential apartment blocks, retail shopping centres or industrial buildings like distribution warehouses.

The term ‘unlisted’ means that these types of buildings are not held by an organisation that is listed on a public exchange like you see with other asset classes such as shares on a stock exchange. 

Why we invest in unlisted property

At Rest, we have the resources to access large, unlisted properties which helps to diversify our diversified options (including the Growth and Balanced options). Some of the key reasons we choose to access these types of investments in our diversified options are:

Quay Quarter Tower exterior view
Contributions

Regular income

Unlisted property can be a source of regular income growth. Leases for large commercial buildings are set for a fixed period (generally 5 to 10 years). These commercial leases also typically include annual rental increases.

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Inflation protection

Some leases (typically retail leases) have annual increases linked to consumer price index (CPI) or inflation rate. That means that rent increases each year based on inflation.

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Potential capital growth 

Potential for the value of unlisted property to grow over time as rental income increases.

Abacus

Diversification

The performance of unlisted property is typically not linked (or correlated) to the performance of other asset classes like shares or bonds. That means unlisted property has the potential to perform well when asset classes like shares or bonds perform poorly but it may also underperform such asset classes when they perform well. 

Understanding the liquidity risk

Like all investments, if there is the potential for returns, there must be some risks. One of the risks to consider with unlisted property is liquidity – that is, the ability to sell an investment / convert it into cash. Unlisted property cannot be bought or sold as quickly as listed investments. It can take a bit of time to find a buyer when you’re selling a building worth over $100 million!

At Rest, we account for this liquidity risk when we invest in unlisted property assets. We ensure that our diversified investment options have a mix of different asset classes including cash and other more liquid assets like bonds and listed shares which can typically be sold for cash relatively quickly.

Listed property

As you may have guessed, listed property is just that, held by an organisation that is listed on a public exchange like the Australian Stock Exchange (ASX). So, you can invest in the organisation holding the underlying property and that investment can be bought and sold like shares. Another term you may have heard for listed property is a REIT, which stands for Real Estate Investment Trust.

The flow chart below details how REITs deliver returns to investors:

  • Investors can buy a unit or ‘share’ of a REIT;
  • The REIT pools together the money from investors to buy and manage different properties;
  • The REIT receives rental income from the properties it holds and proceeds from properties it sells; and
  • That income is then paid out on a regular basis to investors in the form of distributions.

How REITS work

An infographic visualising how REITs work An infographic visualising how REITs work

Why we invest in listed property

The key benefit for investing in listed property (as opposed to unlisted property) is that it makes buying and selling listed property quicker as the share market trades nearly every weekday. So, if a super fund would like to manage how much it has invested in the property market (increase or decrease its exposure), it's much easier to do so versus unlisted property.

Understanding the volatility risk

As listed property can be easily bought or sold via a stock exchange, investing in it operates similarly to trading shares. While this has its benefits, the downside is that listed property returns are typically more volatile than unlisted property as performance is also more closely linked with the ups and downs of the share market.

Property at Rest

At Rest, our focus is on delivering strong-long term performance for our members. Property therefore plays an important role in our diversified options as it diversifies the portfolio to help provide more stable returns over the longer term.

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