What is a REIT?
A REIT is simply a trust company that pools together funds from investors and applies that money to acquire a group of property which they will then manage, develop and later possibly sell.
More formally, the REIT gets its money when investors subscribe for units in the REIT in an IPO3 or via subsequent placements or rights issues undertaken by the REIT. Once the REIT has acquired a package of properties, the REIT is viewed as a property owner where its properties are managed by an active professional manager. The manager’s task is to lease the properties out to obtain rental income for distribution to its unitholders. In order to maximise the income the manager would occasionally renovate the properties, upgrade, tear them down, rebuild and even redevelop or sell the property.
In many countries, the REIT is is unique because of its favourable tax features that legislation grants to promote the REIT. This means that the success of the REIT is often determined by a government’s pro-active stance in providing favourable tax treatments, without which the REIT may languish or fail to take off. Having said that, this is not across the board, notably in Hong Kong, where there are no special tax incentives for REITs. However Hong Kong does have a relatively benign tax regime regime, making it unnecessary for favourable tax treatment.
In the hands of investors, REITs are instruments that offer an opportunity to invest in a professionally managed portfolio of real estate, through the purchase of a publicly-traded investment product. Traditionally, REITs are viewed as an instrument having some characteristics of a bond and other characteristics of both a bond and a stock. Like a bond, it is mostly able to provide a fairly predictable and steady flow of periodic income. Like a stock it can provide capital upside and be a hedge against inflation.
For an investor of REITs, he is able to enjoy the some of the compelling advantages of a bond without sacrificing the advantages that stocks or equity provide. In a sense it is a new investment instrument blending the traits of both stocks and bonds and can be highly appealing for an investor, particularly one with a favourable disposition towards real property in Singapore.Earning Disclaimer
“Please note that the material here is provided to you for general information and illustrative purposes only, or as descriptive case studies on how our value-investing principles may be applied. It is not intended to be and should not be construed as any form of general or specific financial advice. For the avoidance of doubt, we do not recommend or provide opinions on how or what you should or should not be investing in, and you should always do your own research and independent assessment before making any investment decisions, taking into account your own specific circumstances. If you require any financial advice on investments or any other financial matters, please consult the relevant professional financial advisers.”