REAL ESTATE INVESTMENT TRUSTS(REITs)

 

1. Real Estate Investment Trusts (REITs) are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as REITs. Most REITs trade on stock exchange, and offer number of benefits to investors.

2. Real Estate Investment Trusts (REITs) is a company that owns, operates or finances income producing real estates. REITs provide an investment opportunity like a mutual fund, that makes it possible for an investor or investors to benefit from valuable real estates, also REITs presents an opportunity to access divided-based income and total returns and help investors to grow, thrive and revitalize their investments. REITs allow anyone to invest in portfolios of real estate the same way they invest in other industries.

3. Real Estate Investment Trusts(REITs) are regulated vehicles that enable collective investment in real estate, where investors pool their funds and invest in a trust with the intention of earning profits or income from real estate, as the beneficiaries of the trust.

 Real Estate Investment Trusts source funds to build or acquire real estate assets which they sell or rent to generate income. The income generated is then distributed to the shareholders at the end of a financial year. They operate income producing real estate or related assets which may include office buildings, shopping malls, apartments, hotels, resorts and warehouses.

In the country for example the property market has seen exponential growth over the years. However, financing costs for development of these real estates are high despite the market being undersupplied especially in housing for the lower segment of the market. The high financing costs associated with real estate development and the underway of housing has proven to be the challenge towards the further advancement of the sector. To remedy these, the government has put measures that will boost investments in real estate through REITs, which are traded stocks and investors can buy and sell shares and they are regulated by Capital Market Authority(CMA). REITs provide a platform for fund raising, and these funds are used for development or purchasing of real estate from multiple investors.

How REITs works

Real Estate Investment Trusts(REITs) act as trustees where they acquire properties and holds them on behalf of beneficiaries, who are the investors. The trustees are responsible for the appointment and supervision of the manager and also ensuring that the assets of the scheme are invested in according to the trust deed and the offering memorandum. They also ensure that distributions from the assets of REIT are made in accordance with the offering memorandum.

There are many types of REITs but I will explain only three and the other ones I will explain them in the next article. Types of REITs are.

1. Development REITs (D-REITs)

This is a type of REIT in which resources are pooled together for purposes of acquiring eligible real estate for development and construction projects. This includes housing or commercial projects. D-REIT can be converted to Income REIT(I-REIT) once the development is complete where the investors in D-REITs can choose to sell, reinvest or lease their shares or convert their shares in I-REIT.

2. Income Real Estate Investment Trusts (I-REIT)

This is a Real Estate Investment Trusts that mainly derives its revenue from rental properties. The investors pool their capital for purpose of acquiring long term income generating real estate which include housing, commercial and other real estate. The investors gain or get returns through rental income and capital appreciation from the investments undertaken. The appreciation is usually distributed to unit-holders at the agreed duration.

3. Islamic Real Estate Investment Trusts

This is a unique type of REIT which only undertakes Sharia compliant activities. This REIT is Sharia law compliant with reference to the tenants it leases the property to, the method and terms of borrowing, insurance contracts and the type of real estate it invests in. Islamic REIT are required to have a Sharia adviser to ensure compliance with the Sharia principles. A fund manager is also required to do a compliance test before making an investment in this type of REIT to ensure it is a Sharia compliant.

REITs are a good option to raise funding as they give people an opportunity to participate in real estate projects. Investors are encouraged to invest their capital in REITs and they will enjoy the benefits it presents.

NOTE: Before investing in REITs do your DUE DILIGENCE before making your last investment decision.