Owning a property has long been referred to as the Australian Dream, but as house prices rocket and the barrier of entry to the property market rises, many are seeing property ETFs as an alternative way of getting a foothold on the property ladder.
Exchange traded funds (ETFs) provide a great avenue for investors to gain exposure to property, both Australian and global, by investing in real estate investment trusts (REITs).
REITs are an indirect way of owning property by investing in companies that own income-producing real estate across a range of sectors such as residential, commercial and industrial.
For example, they could own things like shopping centres (e.g. Westfield), office spaces (e.g. Dexus) and hotels (e.g. Marriott and Hilton).
Stockspot investors with portfolios over $50,000 can add a property and real estate theme to their investment portfolios.
Following the success of our Stockspot ETF Report, we road test the best Australian and global property ETFs across a range of different metrics, to provide our analysis on the most suitable choice for Australian investors.
Best Australian property ETF
There are three ETFs available for investors to gain exposure to Australian property after BetaShares Martin Currie Real Income Fund (Managed Fund) RINC was delisted:
- Vanguard Australian Property Securities Index ETF (VAP)
- VanEck Australian Property ETF (MVA)
- SPDR S&P/ASX 200 Listed Property Fund (SLF)
Size
The Vanguard Australian Property Securities Index ETF (VAP) is the largest Australian property ETF in the Australian market with almost $3 billion in funds under management (FUM).
SLF, launched in 2002, is the oldest ETF in the group, and currently has just under $510 million in FUM. It recently lost the second biggest property ETF title to MVA which has amassed $540 million in FUM.
Costs and slippage
SLF is the lowest cost in the group at 0.16%, followed by the Vanguard Australian Property Securities Index ETF (VAP) charging 0.23% in management fees per year while MVA is the most expensive charging 0.35%.
The spreads on VAP are the tightest, at 0.06% whereas SELF has a spread of 0.16% making its total cost of ownership 0.31%, which is less than MVA, which costs 0.46% to own.
| ASX CODE | COST (MANAGEMENT FEE) | BUY/SELL SPREADS (SLIPPAGE) |
| VAP | 0.23% | 0.06% |
| MVA | 0.35% | 0.11% |
| SLF | 0.16% | 0.16% |
Liquidity
One of the key advantages of using an ETF to gain exposure to property is the ability to quickly buy and sell your investments.
You don’t have to wait weeks or months to finalise a property transaction or settlement, as ETFs trade freely on the share market every business day.
VAP is the most liquid Australian property ETF, trading over $4.2 million in average daily volume, closely followed by MVA, which trades almost $4 million in average daily volume. SLF trades around $0.5m per day.
Returns
VAP and SLF have performed the best across the three and five year periods, but have underperformed MVA over the one year. All three property ETFs returned losses over the past 12 months, with MVA returning -1.6% and VAP and SLF returning -5.2% and -5.4% respectively.
| ASX CODE | 1 YEAR TOTAL RETURN | 3 YEAR TOTAL RETURN (P.A.) | 5 YEAR TOTAL RETURN (P.A.) |
| VAP | -5.2% | 3.1% | 13.9% |
| MVA | -1.6% | 1.5% | 12.1% |
| SLF | -5.4% | 3.4% | 13.7% |
Track record
SLF is the oldest ETF in the category, launching in 2002 and tracks the S&P/ASX 200 A-REIT Index.
VAP is the second oldest ETF in the category but tracks the broader S&P/ASX 300 A-REIT covering more companies in the Australian share market.
MVA tracks an index constructed by a related party of VanEck and is more concentrated, only holding 15 companies.
| ASX CODE | INDEX TRACKED | INDEX INCEPTION | ETF INCEPTION |
| VAP | S&P/ASX 300 A-REIT TR | June 2001 | October 2010 |
| MVA | MVIS Australia A-REITs GR AUD | December 2012 | October 2013 |
| SLF | S&P/ASX 200 A-REIT TR | June 2001 | February 2002 |
Stockspot’s verdict
Since we introduced Stockspot Themes in 2016, we’ve given clients the ability to add Australian property as a theme to their Stockspot portfolio. We prefer the Vanguard Australian Property Securities Index ETF (VAP) for this exposure.
VAP has the lowest cost, largest size and is the most liquid ETF in the Australian market. It’s also got a long history, solid returns and broader diversification, which, all combined, makes it our preferred choice.
Read more about Stockspot’s Property Theme bundle here
Best global property ETF
There are two ETFs available for Australian investors to gain exposure to global property:
- SPDR Dow Jones Global Real Estate ESG Fund (DJRE)
- VanEck Vectors FTSE International Property (Hedged) ETF (REIT)
Size
DJRE has lost its first-mover advantage, having launched on the ASX in November 2013, it currently has over $449 million in FUM, while REIT, which launched in March 2019, has amassed some $494 million.
Costs and slippage
Both REIT and DJRE offer 0.20% as their annual management fee. REIT has a wider spread at 0.19% compared to DJRE at 0.16%.
| ASX CODE | COST (Management Fee) | BUY/SELL SPREADS (SLIPPAGE) |
| DJRE | 0.20% | 0.16% |
| REIT | 0.20% | 0.19% |
Liquidity
REIT and DJRE trade almost identical trading volumes, averaging $0.7 million daily.
Returns
DJRE has outperformed REIT over a 5, 3 and 1 year period. Given DJRE’s unhedged nature, it has benefited significantly from a falling Australian dollar against the U.S. dollar over the long term. Notably DJRE has a higher allocation to retail and residential sectors compared to REIT.
| ASX CODE | 1 YEAR TOTAL RETURN | 3 YEAR TOTAL RETURN (P.A.) | 5 YEAR TOTAL RETURN (P.A.) |
| DJRE | 9.4% | 1.1% | 6.7% |
| REIT | 4.8% | -5.7% | 5.1% |
REIT pays a decent dividend yield of 4.5% per year and does so via quarterly distributions. DJRE is also yielding 2.8% per year and pays distributions half-yearly. The hedged nature of REIT provides more consistent and smoother distributions for investors too.
Track record and index
DJRE recently changed its tracking index in February 2022 to be more sustainability focused meaning it weights its companies by their environmental, social and governance (ESG) score.
However, the new index which it will now track has a limited track record only launching in April 2021.
REIT’s underlying index has a longer track record having been launched in 2006. It holds a larger number of companies (more than 341 holdings vs DJRE’s 253 companies) and tracks developed markets (such as the U.S., Europe and Japan) excluding Australia.
It provides broad geographical diversification for global exposure. REIT is also hedged in Australian dollars which limits the currency movements against the U.S. dollar.
| ASX CODE | INDEX TRACKED | INDEX INCEPTION | ETF INCEPTION | Index 5 year return p.a. |
| DJRE | Dow Jones Global Select ESG RESI (AUD)* | April 2021 | November 2013 | 6.6% |
| REIT | FTSE EPRA Nareit Developed ex Australia Rental Index AUD Hedged | December 2006 | March 2019 | 5.4% |
*On 1 February 2022 DJRE changed its index from Dow Jones Global Select Real Estate Securities Index.
Stockspot’s verdict
Stockspot’s preferred ETF is currently REIT, which replaced DJRE as our global property theme in 2022.
REIT is now nearly four years old and has attracted over $500 million of assets. Its lower management fee, broader diversification and increasing trading volumes are attractive reasons for being our preferred global property ETF choice.
REIT also pays a decent dividend yield and more frequent distributions which can help investors enhance income in their portfolios.
Read more about Stockspot’s Property Theme bundle here
