REITs (Real Estate Investment Trusts)

23 Jun 2025 GS 3 Economy
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REITs

  • Real estate investing traditionally requires large capital and offers capital appreciation (land) or rental income (properties).

  • REITs (Real Estate Investment Trusts) offer an affordable, liquid alternative to direct property investments.

What Are REITs?

  • REITs function like mutual funds that invest in rental-generating commercial properties.

  • Required to distribute 90% of Net Distributable Cash Flow (NDCF) to unitholders at least twice a year.

  • Offer stable income if occupancy rates remain high.

  • Can be purchased via trading accounts, making them accessible and portable.

  • Liquidity & Affordability: Can buy single units via trading accounts (unlike lump-sum property purchases).

Advantages

  • Low investment threshold compared to buying property.

  • Liquidity and portability, ideal for professionals who move frequently.

  • Stable cash flows if the underlying properties are well-managed.

Limitations

  • Listed securities → subject to stock market volatility, even if rental income is stable.

  • Limited capital appreciation since REITs must distribute most of their income and can’t aggressively expand property portfolios.

  • Higher cash flow volatility if REITs invest in commercial properties (vs. residential).


  • Land is better for capital appreciation, while REITs are optimal for rental income generation.



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