Explore how property syndicates work in Australia, their potential benefits and risks, and what brokers and investors should consider before investing.
Property syndication has been around for decades, and it's back in the spotlight. Australian property prices keep climbing, the economy is settling into a post-pandemic rhythm, and experienced investors are looking for smarter ways to spread their risk. So is a property syndicate the answer? Here's what brokers and their clients need to know.
What is a property syndicate?
A property syndicate is a form of direct property investment in which a group of investors combines its capital to buy real estate that none of them could afford alone. The pooled funds might be used to purchase an established property or to finance a new development from the ground up.
Syndicates commonly invest in:
- Office buildings
- Apartment buildings
- Retail centres
- Industrial facilities
At the end of the investment term, investors can sell the completed asset and take their share of the profit, or hold it and receive an ongoing passive income stream.
In Australia, property syndicates are covered by ASIC Regulatory Guide 77, Property trusts and property syndicates (RG 77).
What does a syndicated investment look like?
A syndicate can hold one property or several. Spreading capital across multiple assets is a well-established risk management approach. That said, a single-property syndicate can still deliver tax benefits, regular cash flow and the potential for capital growth.
Most syndicates are also finite by design. Typically there's a fixed number of investors and a defined investment period, after which the syndicate winds up.
What should investors consider first?
Like any investment, property syndicates carry risk. Beyond speaking with a licensed financial adviser, clients should work through these questions before committing:
Property type. Is the syndicate buying an existing property or funding a new development? With an established property, the syndicate takes over and income can begin quickly. With a development, such as buying land, building a shopping centre and then leasing it, investors can usually expect no return until construction is complete.
Management. Who is running the syndicate, and what is their experience? Look for a demonstrated record of managing syndicates successfully.
Liquidity. Syndicates are generally illiquid, so capital may be locked in for five, seven or even ten years. Is there any way to exit early if circumstances change?
Interest rates. How would movements in interest rates affect the syndicate's investments?
Yield. What is the projected yield, and what assumptions is it based on?
Tenants. The quality and stability of the tenant base has a major influence on overall returns.
Government policy. Could a change of government or policy direction affect the syndicate's performance?
Costs. Read the prospectus closely for fees and charges, including insurance, management, marketing and exit fees.
Due diligence. Before anything is signed, a solicitor or financial adviser should review the prospectus in full.
The benefits of investing in a property syndicate
Access to high-value assets
When investors pool their funds, properties that were once well out of reach become achievable. That opens up a far wider range of opportunities for smaller investors. Generally, the bigger the asset, the stronger the income potential. A large commercial property such as a suburban shopping centre can secure long-term leases with major, recognisable tenants. Those tenants draw shoppers, and the foot traffic in turn attracts other businesses willing to pay premium rents.
Portfolio diversification
Any good financial adviser will tell you that a diversified portfolio is one of the best risk management tools available. By spreading capital across different types of investment, from residential property through to large-scale commercial assets, investors reduce their exposure to any single outcome.
A faster path to growth
Buying a second property normally means building up equity in the first or saving another full deposit, and both take time. A syndicate asks for a much smaller contribution, so investors can get started sooner. Once returns start coming in, they can be reinvested into another syndicate. That compounding effect can help a portfolio grow more quickly than going it alone.
Set-and-forget investing
For investors with a longer-term outlook, syndicates offer a simple model. After the due diligence is done on the property, the management team and the prospectus, the investor makes their initial contribution and waits for distributions to begin.
That doesn't mean switching off entirely. Smart investors still keep an eye on performance by reading regular updates and attending investor meetings where they can. With that level of engagement, a syndicate can be a solid way to build regular passive income and plan for retirement.
Before making any decision, clients should speak with their licensed financial adviser and their accountant.
This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to buy or sell any financial product.