Australian property prices just seem to keep rising. Could the VanEck Australian Property ETF (ASX: MVA) be a smart income play?
The Australian property market
Much of the focus on the property market in Australian media centres on residential house prices and the fact that Australia is one of the most unaffordable housing markets in the world.
Many investors consider property investing as a way to diversify shareholdings and again this is usually focused on the residential market.
An opportunity that doesn’t get as much attention is commercial property investing. Commercial property includes a wide range of assets from office buildings and standalone shops to warehouses and farms.
The reason many investors don’t consider commercial property is because the cost to invest directly is so high. However, there is a solution.
Real estate investment trusts (REITs)
A real estate investment trust (0r REIT) is a publicly-listed company that owns and operates income-producing property assets. Investors can buy shares in a REIT on the ASX just as you would buy shares in a company like Westpac Banking Corp (ASX: WBC).
A REIT can be a great way to get access to commercial property assets without the high upfront costs and risks of owning a single asset.
There are quite a number of ASX-listed companies that operate REITs, including Goodman Group (ASX: GMG), Charter Hall Group Ltd (ASX: CHC) and Mirvac Group (ASX: MGR).
REITs do not normally generate high capital gains. They’re much more suited to income investors who can benefit from the consistent cash flow.
If you’re interested in adding property exposure to your portfolio for income it can be hard to choose from the many options available. The VanEck Australian Property ETF (ASX: MVA) could be a good place to start.
The Australian Property ETF
The MVA ETF invests in ASX-listed REITs. The ETF maintains a minimum of 10 holdings and a maximum allocation of 10% to any individual REIT ensuring a diversified portfolio.
The MVA ETF also uses rules to ensure the REITs it invest in are of a reasonable size and have good liquidity.
The REITs chosen provide diversification across multiple sectors. Around 35% of holdings are diversified REITs, another 30% are retail (like shopping centres) and ~14% are industrial REITs. The remainder is mainly offices and self-storage with a small amount of residential exposure as well.
The management fee is currently 0.35% per year and the MVA ETF pays distributions twice per year.
So, how does it fair as an income investment?
Over the last 10 years the MVA ETF has returned 5.1% per year in distributions, and a further 3.1% per year in capital growth. Over the same period the ASX 200 has returned on average 4.5% in dividends per year.
If you’re an investor closing in on retirement or looking to shift focus away from growth and into income investments, the MVA ETF (or REITs in general) are worth having a look at.
They can provide diversification if you don’t have other property exposure and the distributions tend to be fairly stable over time and can be a good alternative to the typical blue-chip dividend payers.
