06 March 2017

Investing in Australian real estate: Types of investment structures available

Investments in Australian real estate can be made either through the direct acquisition of real estate, or, indirectly, by acquiring ownership of a corporate or trust structure that holds real estate.

The choice of acquisition structure (e.g. direct or indirect) and investment vehicle is a key part of structuring a proposed transaction and will be influenced by a number of factors, including legal, accounting and tax considerations.

A snapshot of the types of structures and vehicles available to investors, together with certain regulatory considerations, is set out below.

Investment Structure

Key Features

Regulation

Trust/Managed investment schemes (MIS)* (wholesale investors)

  • Managed by a trustee and/or investment manager
  • If investors will all be wholesale, then the trust will not need to be registered as a MIS
  • Needs to operate under an Australian financial services license (AFSL) (the AFSL is usually held by the trustee, although there is flexibility for it to be held by the investment manager or by an external party through representative and/or intermediary arrangements)
  • Also regulated by the general law of trusts

Trust/MIS* (retail investors)

  • Managed by a trustee/RE and/or investment manager
  • If there will be retail investors, the trust may need to be registered as a MIS however, this also allows the fund to raise capital from a larger pool of such potential investors
  • Usually needs to be registered as a MIS If registered, there is a heavier regulatory and compliance burden (additionally, there are likely to be disclosure compliance obligations if the investors are retail)
  • If registered, RE must be a public company and hold an AFSL
  • Also regulated by the general law of trusts

Company

  • Managed by its directors
  • Members rights are governed by the constitution and/or a shareholders’ agreement
  • Regulated by the Corporations Act 2001 (Cth)
  • In some cases disclosure to investors may be required for capital raising purposes

Joint Venture

  • Rights are governed by joint venture agreement, a unitholders’ agreement (where the joint venture vehicle is a trust) or a shareholders’ agreement (where the joint venture vehicle is a company)
  • Can be used in conjunction with all the above structures
  • Enables co-operation with other market participants – e.g. ability to access other market participants’ resources (financial or other expertise)
  • Regulation can depend on the type of the joint venture vehicle (e.g. a trust or company) – see above


It is crucial to appropriately structure an investment to ensure that adverse or unintended legal, accounting or tax consequences do not arise.

For a complete overview of the initial legal, tax and structuring issues that foreign investors should consider before investing in Australian real estate, download Investing Down Under: A Guide for Global Real Estate Investors in English or Chinese (中文).

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