What you need to know about investing in unlisted property funds

An unlisted property fund refers to a type of direct property investment that gives you the chance to acquire commercial property through an investment fund. So by investing in these unlisted property funds, you can receive units in the trust or fund that holds the property assets. 

Keep in mind that an unlisted property fund is managed by an expert property investment manager. This article explains what you need to know about investing in unlisted property funds. 

Understanding unlisted property funds

Unlisted property funds can be categorized as open-ended or close-ended investment funds. With an open-ended investment fund, it means the fund allows you to purchase into and sell out of this investment fund overtime.

On the other hand, if you invest in the closed-ended fund property funds, then you need to stick with the investment during the investment term. Besides, there are also few avenues you can sell before the asset at hand is sold or prior to the end of the fund life. 

In most cases, close-ended funds are usually linked to unlisted property funds, though there is an increasing change to open-ended funds. For institutional investors, these close ended funds are also linked to value-added real estate strategies, which have a specific entry and exit life span. 

Open-ended funds are ideal to and aligned with key strategies where your main focus should be for long term capital appreciation and income stability. It’s important to note that just because the fund is open-ended it doesn’t mean that there is liquidity when you intend to exit the fund. 

At the time of the sale, the liquidity risk can depend on fund liquidity as well as incoming investor interest. But many investors in both of these funds can have an option if there is enough liquidity in the trust or from other investors.

Unlisted property fund fees

There are a wide range of fees that the manager can charge you as part of the management of the fund. You can check these fees in the funds product disclosure statement.

That said, there can be management fees that cover the management of the fund. This fee can be charged as a percentage of gross asset like 0.8% of the property at hand or even on a net asset basis. 

There are also indirect costs that measure all the fees the property manager charges the fund, such as the management fee. The aim is to get any other fees the fund manager earns from managing the fund so that you can have a good picture of all the fees you pay for. For example, there can be leasing fees that are paid to the manager if they got leases on the property. It can also be property management fees that the fund manager earns looking after the property. 

It’s necessary to note that the indirect cost can be high, but it doesn’t mean that the overall fees are high. For instance, leasing fees have to be paid and the manager has to be compensated for doing the deal.