Real Estate Investment Trusts (REITs) are securities investments that allow you to own shares in properties such as shopping malls, offices, factories and hotels while enjoying rentals from these properties in the form of distributed income.
Before REITs existed, an investor who wishes to invest in real estate for the purpose enjoying rental income and asset appreciation would have to put up a hefty investment upfront by purchasing the intended real estate. REITs allow investors who do not have access to such capital streams own their own shares in income producing real estate.
As the name suggests, REITs are legally trust corporations. Investors are able to participate in the properties that a trust holds by owning the shares in the trust. For a trust to qualify and enjoy favourable tax rulings as a REIT, it will have to distribute at least 90 percent of its income to shareholders annually. Investors holding on to shares of REITs typically receive the distributed income in the form of cash dividends every quarter.
What Are The Returns Like On REITs?
REITs have beaten stocks for much of the preceding years. For 2012, Asian REITs investors enjoyed returns of between 17.89 percent – 60.25 percent* on their investments after factoring in asset appreciation and income distributions.
In countries such
as Singapore, REIT indexes have also constantly beaten national barometers of the economy such as the Straits Times Index.
REITs will continue to enjoy superior returns like these as long as there are tenants paying rents in the various shopping malls, offices, hotels and factories that they own. This will very much depend on how well an economy of the particular country is doing.
Who Invests In REITs?
Besides individual investors, organisations such as pension funds, investment banks, insurance companies, private equity corporations and other institutional investors have all seen the benefits of investing in REITs due to its strong potential for long term growth and high levels of current income.
In recent years, Asian REITs have particularly caught the spotlight of investors all over the world due to the promising prospects for growth in the region.
What Are The Sectors That I Can Invest In When Investing In REITs?
Although there are REITs that invest a broad variety of real estate types, most REITs typically focus in a specific sector. Each of these sectors have unique attributes. For example a REIT that focuses on hotels and hospitality properties will typically be exposed to the cyclical nature of the tourism industry.
The following are the broad categories in which REITs invest in: