The security of the investment depends on the type of trust, the properties it holds and the trust’s investment policy. For property securities trusts and unlisted property trusts these details should be outlined in the Product Disclosure Statement (PDS). Although these documents are lengthy and complicated, they should be fully understood before investing.
In assessing the risk or security level consideration should be given to:
- the quality of the properties invested in or owned by the trust including location, condition, management and whether they have good long term tenants;
- the type of property in the trust, eg. residential, commercial, industrial etc.;
- the frequency, accuracy and method of valuations;
- the spread of property within the trust, e.g. trusts investing heavily in development or resort properties usually have higher risk;
- the type and quality of the property related securities,
- if any, and their spread across different companies;
- the amount of borrowings if the property trust borrows funds to invest. A high level of borrowings (gearing) increases the potential amount of capital gain or capital loss.