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Why REITs is better (compared to FD or property)

Stock market is a high risk high return investment. You need to constantly monitor the performance of the companies you bought, and it might be a tedious job to you. Many people shun away from stock market because it is difficult to learn how the stock market mechanism work, and there are too many stories of people losing money in it. There's a general saying that out of 100 people who invest in stock market, 90 people are losing money in it in the long run.

Property is also a high risk high return investment. To win in property investment, it's always location, location and location. Properties in good location usually have a huge premium price over the others, and nowadays the prices had skyrocketed, especially for the last 6 months. And between residential and commercial properties (shoplot, office etc), the latter are better for investment as the rental rate is good and the appreciation  is faster. But, it is beyond reach of most middle income working class.

So for those who wants to have a share of the commercial properties, what are your options? We would suggest you to buy Real Estate Investment Trust (REIT) stock.

According to Investopedia.com definition:
"REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. 
Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents." 

In short, a REIT company is like any company that is listed in the stock market. Their primary business activity is to purchase properties (especially commercial properties), rent it out, and are required to distribute 90% of the rental income back to it's shareholders in the form of dividend.

Why do we love REIT and why is it suitable for those who loves to have commercial properties:

  1. People who buy commercial properties loves it because of appreciation and rental. The same goes for REIT, as REIT buys properties and distribute rental as dividend. When the purchased property appreciates, the REIT share prices also increase.

  2. The initial investment for REIT in KLSE is very low at just 100 share.
    So, if you are excited with Subang Parade Shopping Centre's prospects, you can own a small part of it by investing in HEKTAR REIT (the company that owns Subang Parade (Selangor), Mahkota Parade (Malacca) and WETEX Parade(Johor))

    At current price of RM1.31, 1 lot (100 share) of HEKTAR will be RM131*. HEKTAR had been consistently giving back at least 8% dividend annually to it's shareholders for the past 3 years, which means for every RM131 you invest, you are getting RM10.48 as dividend annually. And not to forget, if properties price increase, HEKTAR REIT's complexes will also benefit from the appreciation (which means your share bought at RM1.31 have the chance to appreciate further if property market sentiments are good).

    It is definitely better than investing in Fixed Deposit (FD) which only gives 3% interest annually!

  3. Good liquidity. If you owns a property, the process of selling is difficult as you need to go through lawyer, seller, agents, paper works etc. In REIT, it is simple. You just sell it off in KLSE. There are always buyers waiting to buy. Just make sure that the price is right!

  4. You don't need to be bothered by problem posed by tenants! All these problems will be handled by a team of professional manager.


*RM131 exluding stock broker fee.


1 comment:

Katie said...

Love #4! That truly is one of the best reasons why investing in a REIT is the best way to invest in real estate. Cole REIT seems to be a good investment choice. It's non-traded so a little different than the REITs you mention, but still a good investment. Cole has a diversified portfolio of retail, office and industrial real estate across the US which is good quality to look for in a REIT.

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