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Listed Property Trusts – A safe alternative?

I want to get into property but I can’t get a loan for what I want and so some friends have recommended Listed Property Trusts. I am not keen on the stock market after I saw what happened this year. Are these different than shares?

Listed Property Trusts were the darling of investors for quite some time. The salespeople who flogged them pointed out that they provided high yields, capital growth and relatively low levels of volatility.

That was until the last 12 months! Between June last year and 15 July this year, the share market value of Listed Property Trusts was down 50 per cent!

There has been a 20 per cent rebound but plenty of investors have been battered by the LPT experience. Before this bad turn, these investments had provided investors with an average return of 14.6 per cent a year over 10 years.

The trouble set in when these trusts bumped up their borrowing and this left them exposed to the credit crunch and high interest rates. Centro is a famous, or infamous, one that has paid the price of too many borrowings. So, what do they do? The trust is effectively a fund that buys buildings, industrial estates, shopping centres, warehouses, etc., making money out of rents and the increased value of the buildings — capital gain.

Provided they don’t do anything silly and the stock market does not crash, investors can get exposure to property without buying it themselves and having to deal with agents and tenants. Some pay investors income on a quarterly or half-yearly basis. They can be bought via stockbrokers and, unlike most property, are easy to turn into cash at short notice. There can be attractive tax benefits with LPTs as they can access depreciation allowances, which reduce the potential capital gains tax. Make sure you look into this.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, May 14, 2010

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