Alternative real estate investments in Australia: Unlocking opportunities
The Australian property market has been a popular investment choice—rising costs of direct ownership push investors to seek new strategies.
Increasingly, investors are turning to alternative real estate investments in Australia as a way to gain exposure to the property sector without the need to own physical real estate.
We have seen a sharp rise in alternative real estate investment in Australia, including commercial real estate debt, with investors attracted by the potential risk-adjusted returns, stable monthly income, and portfolio diversification benefits.
Understanding alternative real estate investments in Australia
Traditional real estate investment typically involves buying brick-and-mortar properties outright. Direct ownership can be expensive and potentially risky, with investors putting all of their eggs in one basket. The red-hot property market and sky-high property prices also mean this investment strategy is becoming less viable for many Australians.
In contrast, alternative real estate investments in Australia includes non-traditional avenues to property, like real estate private debt, giving investors access to property investments that may otherwise be unattainable. These types of investments provide exposure to the property market without direct ownership, offering a more flexible, diversified, and often more defensive investment strategy.
To further understand how alternative real estate investment in Australia works, you can explore this guide.
Benefits and risks of alternative real estate investments
Like all investments, alternative real estate investments in Australia comes with both risks and rewards. One key benefit is the potential for diversification—alternative assets tend to be less correlated with traditional market movements, which can provide stability during times of economic uncertainty. Additionally, many alternative real estate options, such as private real estate debt, offer consistent income streams.
However, there are also risks involved. Generally, higher risk is associated with the potential for higher returns but also with a greater risk of capital loss, while lower risk typically corresponds to lower returns. Each investor should conduct their own risk-return analysis to decide which investment option, whether alternative real estate or other, best suits their specific needs.
Additionally, market fluctuations, liquidity concerns, regulatory changes, and specific risks related to each investment type should be carefully evaluated and investors need to weigh these considerations carefully before committing to an alternative real estate strategy.
Key considerations for investors in Australia
- Risk tolerance: One of the most important factors to consider when pursuing alternative real estate investments in Australia is your risk tolerance. Some investors may prefer higher-risk, higher-return opportunities, while others may prioritise steady, reliable income streams. Commercial real estate debt, for example, can provide consistent returns with lower volatility compared to some other alternate asset classes.
- Investment objectives - equity vs income: Your investment goals should align with the type of real estate investment you pursue. Equity-based investments typically focus on long-term capital growth and the higher risks can reap higher returns. On the other hand, income-focused investments, like real estate private credit, emphasise regular, stable income over time. The higher position on the capital stack can also help mitigate risk exposure.
- Diversification: Diversification is a critical aspect of any robust investment strategy. Spreading your assets across different sectors and asset classes helps reduce overall portfolio risk. Alternative real estate investment in Australia offers a range of opportunities for investors to diversify across a variety of property sectors and investment vehicles. By incorporating alternative assets, you can reduce exposure to any single market downturn and create a more balanced investment portfolio.
- Due diligence: Investing in alternative real estate requires comprehensive due diligence. It’s essential to understand the market, assess potential returns, and evaluate the track record of the investment manager, fund managers or developers. Real estate private debt, for example, requires careful assessment of the borrower’s creditworthiness and the underlying property’s value.
Unlocking your opportunity in alternative real estate investments
As the real estate market continues to evolve, alternative real estate investments in Australia is becoming an attractive option for investors looking to diversify their portfolios. These investments provide exposure to niche sectors of the property market, offering both capital preservation and income opportunities without the costs or same risks of direct property ownership.
By carefully considering your risk tolerance, investment objectives, and diversification strategy, you can take advantage of the unique characteristics the various types of alternative real estate investments in Australia.
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Alan has more than 30 years’ experience in banking and finance, following a short stint as a legal practitioner, with work experience in the UK, South Africa and Australia. His many and diverse roles include C-suite positions in two-listed banking groups in South Africa, CEO of South Africa’s third largest private client wealth manager, Director of a Superannuation Risk and Operations consultancy, a consultant to Westpac, and as MD of a ‘home loan over the phone’ business established for Real Insurance and Macquarie Bank. He has consulted widely to owner-managed businesses across strategy, technology and operations and co-founded Zagga in 2016, where he is a Member of the Zagga Investment Risk Committee, Zagga Credit Oversight Committee, and Zagga Compliance Committee, and a Responsible Manager (AFSL / ACL).
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This article is for information purposes only. It does not take into account your objectives, financial situation or needs. Any opinion expressed in this article are of the author and is subject to change without notice. Readers are reminded to exercise caution and use their own judgment when interpreting and applying the information contained in this article.
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Alan has more than 30 years’ experience in banking and finance, following a short stint as a legal practitioner, with work experience in the UK, South Africa and Australia. His many and diverse roles include C-suite positions in two-listed banking...
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Alan has more than 30 years’ experience in banking and finance, following a short stint as a legal practitioner, with work experience in the UK, South Africa and Australia. His many and diverse roles include C-suite positions in two-listed banking...
Expertise
No areas of expertise
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