Smart Investment for Beginners: Demystifying REIT and Real Estate
There was a big wave of REITs in Asia over the last few years, and Britain is to beat their drums in anticipation of its first REIT in the country. What is a REIT in any case, and how they are to other types of investments in comparison?
What is REIT?
REITs or Real Estate Investment Trust, founded by the U.S. Congress in 1960 to give general public the opportunity to invest in large commercial real estate. The structure has since replicated in many countries around the world.
REIT is established a unit to (hold a portfolio of real estate can) as a mutual fund. The company makes its money by receiving rental income from these properties and to a lesser extent, given for the sale of real estate capital.
REIT is required by law to distribute at least 90% of their taxable income to its shareholders as a dividend. In return, they pay little or no income tax.
Development of the Global REIT —
North America and Australia are mature REIT markets with REITs recording + 95% of the total real estate markets. Meanwhile, Europe and Asia are emerging to capture REITs with 27% and 15% of the total market respectively.
Timeline of the path of REIT legislation in the world:
1960: USA, Netherlands
1970s: Australia
1990s: Belgium, Turkey, Greece, Canada, Brazil
2000s: France, Japan, Singapore, Hong Kong, Thailand, Taiwan, South Korea, Malaysia, Mexico
Expected: UK (January 2007), Germany, India, Israel
REIT vs. real estate company’s shares
Tax efficiency: In general, REITs pay little income tax in relation to the compulsory 90 +% dividend payout ratio policy. (note that while this is the case in the U.S., they can not for certain countries)
Diversity: Although you can buy just a few houses or a handful of property shares, you buy a unit of the REIT consists of hundreds of real estate investments.
Stable income: Since REIT portfolio of properties and the revenue source is usually in the form of rents, the volatility of these investments is significantly lower.
But less explosive growth potential: Due to the 90% dividend payout ratio policy, a REIT can not do serious damage to property accumulated sufficient capital to invest for future growth, thereby maximizing the ability of a booming real estate market.
REIT vs. other non-real estate investments
Diversification have generally REIT investments and other assets a low correlation to other asset classes.
Protection against inflation rise with income: when the property prices and rents with inflation, riding and other real estate investments can protect your investments lose value due to rising prices.
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