Property without the price tag

Real estate ETFs can offer diversification and low initial outlay. Here are the factors to consider.

- Pam Walkley

Most Australians want to invest in property – bricks-and-mortar has many attractions. But with high house prices, good quality commercial property way beyond the means of most of us and surging interest rates, we need to look at other ways we can get a stake in property without outlaying a fortune or borrowing a cent.

Enter real estate exchange traded funds (ETFs), which are available on the Australian Securities Exchange (ASX). The good news is you can buy a parcel of ETFs for as little as $500 and instantly have a diversified portfolio of either Australian or overseas income-producing property companies.

These companies own assets in many sectors, such as residential, commercial offices, industrial, retail and more specialised areas, such as health and hospitality.

Diversifying our investments to include property, a big asset class, makes a lot of sense. Diversification across geographical boundaries reduces risk.

Access to expert management is also an attraction, but this does come with fees.

ETFs pay regular income distributions, which is particularly good for those who live on investment income. Other pluses include low initial outlay and high liquidity and transparency.

One negative is volatility: you have no control over the price of your ETF, so ideally you would not panic and sell if it fell. Another downside is having no control over the portfolio in which you own a stake.

The four local ETFs, ranked from highest funds under management down, are:

• Vanguard Australian Property Securities Index (ASX: VAP)

• VanEck Australian Property (MVA)

• SPDR S&P/ASX 200 Listed Property (SLF)