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Unlisted property funds outperform every asset class over the year
Unlisted Australian Direct Property has emerged as the standout investment sector throughout Covid-19. The cream of the sector has rewarded investors, with some returns above the 40 per cent mark, outpacing most ASX sectors.
And it comes at an opportune time, just as the RBA announces an interest rate rise on the back of a 5.1 percent inflation reading. Despite the rise this week, the RBA’s view will be to continue its low rates policy for the foreseeable future. A 25bps rate rise will actually be a positive result for the Australian property market, which has been running red-hot since the start of the year. The rate rise should cool and stabilise the property market.
For Australian property investors that may have been locked-out of the booming property market or may have over leveraged, there is very little room to move; with rising rates comes mortgage stress, for many, and if property prices don’t cool, more Australians will be locked-out.
An alternative investment tool called “fractional investing” is a way for investors locked-out of the property market to come together, much like a crowdfunding platform, and buy a stake in real estate by paying a fraction of the value that they can afford.
DomaCom (ASX:DCL) operates the leading platform that offers fractional investing, and its platform has been gaining ground. According to the company’s recent quarterly earnings result, home purchase transaction volume increased by a healthy 9% over the same period last year, outpacing overall market trends. How it works is that DomaCom pools investor funds to buy properties; it then allows its investors to buy fractions of the property when it goes for sale. The DomaCom Fund is a managed investment fund that allows investors to select from a range of properties that they would like to invest in, ultimately providing single-asset exposure where it otherwise isn’t affordable.
And it’s of no surprise DomaCom was able to top the performance list with a suite of best-performing property funds. In fact, the top-performing funds were heavily skewed towards the unlisted property space. Often overlooked, the unlisted property space has quietly achieved remarkable results over the last decade. In the 2018 financial year, unlisted property delivered a return of 18.7%, outperforming listed real estate trusts (REITs). In the most recent financial year, direct property recorded a total return of 11.7% , while Australian REITs returned 9.7% to investors.
The best-performing property fund was DomaCom’s sub-fund, Doyles Lower Coleraine Road Muntham VIC 3155 ATR in AU, which rose by 67.23 per cent in the year. Following that was the CorVal Pact Trust, which is an unlisted property trust established to acquire a portfolio of three properties leased to the ASX-listed packaging company Pact Group (ASX:PGH). The three properties comprise industrial warehouse and manufacturing facilities in established industrial markets in NSW, Victoria and WA. The fund returned 60.6 percent over the last year.
The next three funds were DomaCom’s 66 Beaconsfield Parade Northcote VIC 3070 Australia ATR in AU, which returned 43.71 per cent, followed by Spire USA ROC III Retail ATR in AU, which returned 41.13 percent. In the fifth spot was the CorVal Ingham Trust in AU, an unlisted property trust that has a 50% stake in a portfolio of six properties under a sale and leaseback transaction from Inghams Enterprises. This fund posted a 40.91 percent return for the last 12 months.
According to the latest Fact Sheet from MSCI, Zenith, PFA and PCA, without doubt, Australian unlisted property was ranked the best-performing asset class for annualised returns over five years, delivering a 17.8% annualised return. This did better than almost every other asset class. The reason for the strong performance was due to tighter capitalisation rates and recovering rental income from COVID-impacted assets. For the year to 30 June 2021, unlisted property funds returned 18.7%. albeit on a more diversified basis.
