The Rise, Fall and Rise of Property Syndicates

Falling interest rates are prompting investors to look elsewhere for returns, and, with the uncertainties of the share market, property is where they are looking. However, the rush for residential investment property has pushed prices through the roof. Commercial and industrial property is out of reach for the average investor and so property syndicates are back in favour again.

Markets go in cycles and about twenty years ago we saw the same trend. Interest rates had fallen, along with inflation, and people, particularly retirees, were looking for higher income returns. Companies like Waltus, Dominion Properties and St Laurence flourished. Opportunities to buy into property syndicates were quickly snapped up. While the property market was buoyant, investors were happy. It wasn’t too long before the risks became obvious. Some syndicates performed better than others. Investors who wanted to cash up their investments, particularly the non-performing ones, found it increasingly harder to find other investors to sell to. It was unclear when the syndicates would be wound up and the funds returned to investors. Eventually, providers were forced to roll the syndicates into one fund which meant that in effect, investors in high performing properties received a lower return so those in low performing properties could receive a higher return.

Investing in a property syndicate is akin to putting all your eggs in one basket. Liquidity is poor and promised returns may not eventuate if the tenants default or the building requires extensive refurbishment. Syndicates are a more expensive way to own property than owning it directly as the syndicate manager charges a fee. Alternative options for investing in commercial and industrial property are to invest in a listed property trust, or a property managed fund. While there are still management fees to be paid, they offer much greater diversification and liquidity