Ep 386: Which is better: REIT or direct property?

Dec 9, 2025

The discussion tackles the long-standing debate of REITs versus direct property, emphasizing that they serve different purposes. Stuart explains A-REITs, detailing their structures, liquidity, and the risks of concentration. He contrasts this with direct residential property, highlighting its control, growth potential, and tax benefits. Historical return comparisons show direct property as a stronger wealth builder. The Q&A segment provides practical insights on tax treatments for minor shareholders, ensuring parents avoid costly mistakes.

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INSIGHT

Different Tools, Different Jobs

REITs and direct property are different tools, not substitutes for the same job.
You should match each to your goal: income/liquidity or growth/control.

INSIGHT

A-REIT Structure And Payout Rules

Australian REITs must hold ~80% of assets in real property and distribute at least 90% of net income.
Many A-REITs are trusts that pass taxable income to investors rather than paying company tax.

INSIGHT

Gearing Limits In REITs

REITs use gearing but at much lower levels than direct residential property, typically ~30–40%.
Lower gearing reduces risk but limits the compounding power available to individual investors.

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In this episode, Stuart pulls apart the perennial “REITs vs direct property” debate and shows why they’re not substitutes but tools for different jobs. He explains how A-REITs work (structures, stapled securities, payout rules, typical 30–40% gearing) and why their liquidity and ~5% income appeal can be offset by equity-like volatility and index concentration (think one or two giants driving returns). He contrasts this with direct residential property: full control, the ability to gear up to 100%, negative-gearing benefits while working, lower observed volatility, and returns dominated by capital growth, making it a more potent long-term wealth builder when you buy true investment-grade assets. Stuart compares long-run numbers: REITs ~6–8% p.a. with higher year-to-year swings versus quality residential property targeting ~8%+ with smarter selection and sensible leverage. He then reframes their roles: REITs can be an income sleeve (especially when rates are low), while direct property is fundamentally a growth engine. In the listener Q&A, Stuart clarifies tax treatment for “informal trust” share portfolios for minors who are taxed on income, the pitfalls of penal child tax rates, and what actually triggers CGT when transferring to an adult at 18 cutting through conflicting internet guidance so parents don’t make costly ownership-structure mistakes.

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