Property syndicates have been very popular since the 1980s and 90s as investors looked for diversification in their portfolio.
Since then they have lost favour partly as a result of property companies, such as Centro and Octaviar that operated syndicates, suffering significant financial problems.
Since the global financial crisis with uncertainty surrounding property values, lower yields and higher interest rates, few syndicates are being established and it is difficult to find a syndicate that is open to further investment.
What is a property syndicate?
Property syndication is a direct property investment where the smaller property investor with limited available capital has an opportunity to invest in commercial, retail or industrial properties.
These projects are managed and marketed by licensed property dealers and should have a prospectus lodged with the Australian Securities and Investment Commission.
The main objective should be investing in properties with quality tenants, long-term leases, strong returns and good potential for capital growth. There is more risk when investing in only one property though it can provide a regular cash flow, tax benefits and potential capital gains.
Checklist for investing in property syndicates
Here is a suggested checklist to consider before investing in a property syndicate:
- Property type – Is it an existing development? It may be developing a shopping centre by buying land, building it and then renting it out: in which case there would be no return for the initial period during the development stage.
- Capital – Is it an illiquid investment? Capital could be tied up for the fixed period of the syndicate, which could be as long 5, 7 or 10 years. What are the criteria for redemption, if available, before the end of the term?
- Tenants – What is the quality of the tenant? The quality and stability of the tenant will affect overall returns.
- Interest rates – Will any changes in interest rates affect the syndicate’s investments?
- Government policy – Will any changes affect the syndicate’s operation?
- Yield – Check the expected yield.
- Costs – Factor in other costs such as insurance. Check management costs, marketing fees and exit fees shown in the prospectus.
- ASX regulations – Does the property syndicate meet all Australian Securities and Investments Commission regulations?
- Due diligence – Have the prospectus checked by your own legal and accounting professionals.
- Management – Investigate the experience and qualifications of the management of the property syndicate. They should have a proven track record of managing a large portfolio of properties.
Visit the Property Council of Australia’s website for articles on all types of property investment.