Property uncovered: What are REITs?

Julie Brownlee, Fsp Invest, 20 Jun. 2014

Tags: reits, real estate investment trust, what are reits, dividends, property, property investing, why invest in reits,



If you’ve looked at any of the property companies listed on the Johannesburg Stock Exchange, you might have noticed a sub-sector in the real estate sector called real estate investment trusts (REITs). So what are REITs? And why should you invest in them? Let’s take a closer look…



Why invest in property?


Many people like the idea of investing in property. It’s one way of investing that the majority of people understand.

If you’ve bought your own house, you’ve invested in property. And property is an asset class that generally does well over the long-term, Phil Oakley in Money Week explains. And lots of people have made serious amounts of money from property investing.

So if you want to invest in property, but don’t have enough money to invest in properties yourself, what are your options? You can invest in a REIT.


REITs explained


REITs are basically property companies with listings on the stock market, like the Johannesburg Stock Exchange. They’re property investment companies, focusing on rental properties.

The properties are either be for:
  • Residential use, such as townhouses; or
  • Commercial use, such as offices and retail units.
REITs offer you a perfect way to invest in property without doing so directly.

In South Africa, property companies could convert to a REIT from November 2012 as long as they met certain criteria In the UK, REITs became available in 2007.

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REITs pay out regular dividends


The reason that property companies convert to REITs is the way they pay tax is different. They’re exempt from paying corporation tax, but they must return 75% of their profits from their properties to their shareholders.

As a shareholder you receive your share of these profits as dividends. Companies tend to pay these out twice a year.

So there you have it, what REITs are.


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