People invest in a specific rental project for a long time and receive income from the fund’s capital gains. The Australian wholesale property fund aims to acquire, build and sell quality residential houses and buildings in prime locations in Australia. The memorandum of the fund governs the whole of the fund.
Why wholesale property funds?
The term wholesale indicates heavily discounted prices and greater returns. This is due to the property being priced below the valuation of banks and real estate companies. The main reason for this is to encourage the sale of properties and investment in bulk and derive the benefits from economies of scale. The risk is lesser and the return greater than retail investments as the losses made are covered up quickly due to significant scale investments. This is why millions of dollars go into the wholesale property funds to invest in prime areas of Australia. This type of fund has become more popular recently due to increased awareness among investors. Purchasing property in prime locations in Australia like Sydney, Melbourne, and Newcastle can be pretty expensive. This is when the wholesale property fund proves to be of immense help to first-time investors and people with low income and assets.
Significance of the Australian wholesale property fund
The fund was formed in 1985 and aims to increase investors’ income through returns from long-term capital growth. The funds provide the investors with diverse choices of investing in various areas, from portfolio offices to large established corporate industrial buildings. In addition, the fund allows the investors flexibility of choice. Investors can invest whenever they want and withdraw their investment amount by selling their shares. This is quite helpful for people with insufficient funds and assets. This also reduces the risk of losing money when the market prices decrease.
The Australian wholesale property fund professionals have expert industrial research and development, capital transactions, leasing, and property management knowledge. They are called agents who help first-time investors in making suitable investments. These agents are paid commission at the time of acquisition or later as a percentage of the dividends and capital gains received.
Risks associated with the funds
Every investment is attached to its risk. A potential investor must always calculate the return on investment before making any significant decisions. Specific risks associated with the Australian wholesale property fund are-
i) Liquidity- Once the investment is made, the investor cannot immediately access the amount since the funds are locked. However, one can always withdraw their funds after a considerable amount of time, but the process is lengthy and time taking.
ii) Uncertainty- The amount that the investor will receive in interest and dividends will fluctuate with the market rates, rental income, and property sales. If the market prices fall, there is a chance that the investor might not receive any income at all.
iii) Risk of debt- If there is severe deflation in the economy, the investor could lose all the invested amount. The company might also go into debt for various reasons, such as idle property for a long time. However, this is very rare in the wholesale property fund since it involves other covers, an investment with multiple companies, and losses made by one.
The risk of investing section of the memorandum provides the people looking to invest with all the risks associated with the fund. Since the rules and regulations are laid down, reading them carefully and then making a choice is very important though going through the documents is a tedious task.