Since according to finance theory, risk-adjusted returns should equalise, property companies should offer higher average performance to compensate investors with this volatility.
Secondly another disadvantage is that since property companies are taxed on their profits , their is no full tax transparency .
Investing in property shares Investing indirectly means purchasing shares of companies that hold large portfolios of securities on behalf of their share holders.
Indirect investing is a great opportunity for those who are willing to start investing with a small amount, having no previous knowledge or experience of stock market’s ups and downs.
This can be off putting to a investor who wants control and they have to alternatively rely fully on the company’s management decisions regarding investment.
Another shortcoming is that investing in property shares, trusts and funds are not guaranteed by any government body or authorities nor do they provide any specific protection.The shareholder has little influence over the acquistion and disposal decisions made by the company, nor overfinancing decisons (the amount of borrowing -gearing or leverage – and the issuing of new shares which dilute the value of existing shares).Since share prices should reflect judgements about the quality of management, the equity markets provides some form of discipline.There are many uncontrollable variables involved and then there is always a chance of unpredictable happening, normally referred to as “the great unknown”.Mutual funds can be divided into different categories on basis of risk, for example “hybrid fund” being less risky while “specialized stock funds” falling in the high risk – high return category.Also the breakdown between two types of REITs in the index was as follows: 205 equity REITs with a reported value if .06 billion (70.4 per cent of total assest value); 32 mortgage REITs with a reported value of .78 billion (24.7 per cent); and 23 hybrid REITs with a reported value of .34 billion (4.9 per cent).This boom in the market was a direct result of the 1986 Tax Reform Act that allowed greater management flexibility and established a less restrictive tax environment as such more tax transparency, creating the conditions for growth in the REIT market.Some part of this expense is also charged from investors, known as sales load.In addition, another disadvantage is the lack of control that the investor has in guiding their investments.Furthermore another advantage with indirect investment vehicles is the opportunity for the investor to capitalise on discounts and premiums, especially in the case of close-ended funds.The net asset value of investment company’s share keep going up and down based on company’s performance and these shares are not always traded on net asset value.