Direct property investments are ideal for a relatively small group of investors. The prerequisites for successful direct investment are sufficient funds for suitably sized properties and an adequate level of risk diversification. Direct acquisition of property is moreover time consuming, requires experience and tends to incur high transaction costs, such as the costs of researching the property market.
Search (real estate brokers), Property valuation (property valuers), real estate due diligence (lawyers), Opportunity and pricing costs, purchase process for property transactions (lawyers, notary) as well as property taxation (property transfer tax, capital gains tax on property etc.). Some costs are also incurred in submitting purchase offers that are not accepted.
The direct investor has to pay these initial costs himself in complete contrast to indirect property investment, where this operating expenditure is shared among the large number of investors in the investment vehicle. The up-front costs for property acquisition and direct property investment may be a reason for the sharp rise in demand for indirect property investment in recent years.