REITs 101: Lesson 1 What Are REITs
Have you thought of owning a piece of premium real estate like a hotel, hospital or factory and collecting rents year after year?
Have you thought of owning a piece of Singapore where land is scarce?
In the past, only the rich could afford to own expensive but lucrative assets like hotels, hospitals, shopping malls or industrial buildings. The launch of Real Estate Investment Trusts (REITs) allows retail investors to own a piece of these properties indirectly. REITs was first started in United Stated in 1960 and it was eventually launched in Singapore in 2012.
A REIT is a type of security listed on the stock exchange that manages funds which are invested in properties. The objective of REITs is to manage mature properties which generate consistent passive rentals. The primary source of income which is usually the only source of income is through collecting rentals from tenants. In order to enjoy tax reduction, REITs are obligated to pay out at least 90% of their net profit to the shareholders, making them a popular instrument for passive income seekers.
FTSE ST Real Estate Investment Trust Index which tracks the performance of SGX-listed REITs offered a return of 8.97% excluding dividends over the past five years. It outperformed the market (STI index: -8%) during the same period.