Unlocking Real Estate Investment: Exploring the World of Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts, commonly known as REITs, have become a popular investment vehicle, providing individuals with an opportunity to participate in real estate ventures without the need for direct ownership.

This regulated collective investment vehicle allows investors to contribute money’s worth in exchange for acquiring rights or interests in a trust divided into units. The primary objective is to earn profits or income from real estate as beneficiaries of the trust.

Let’s delve into the types, advantages, and the key parties involved in REITs.

Types of REITs:

  • Development Real Estate Investment Trusts (D-REITs):
    • D-REITs bring investors together to pool capital for acquiring real estate with the aim of undertaking development and construction projects and associated activities.
  • Income Real Estate Investment Trust (I-REITs):
    • I-REITs involve investors pooling capital to acquire long-term income-generating real estate, including housing, commercial, and other real estate.
  • Islamic Real Estate Investment Trusts:
    • This unique type of REIT undertakes only Shari’ah compliant activities, requiring a compliance test by a fund manager before investment to ensure Shari’ah compliance.

Advantages of REITs:

  • Long Term Returns:
    • REITs offer competitive returns based on the performance of underlying real estate assets in the REIT structure.
  • Liquidity:
    • Enhanced liquidity compared to direct ownership of real estate assets allows investors to easily buy and sell units in a trust invested in real estate.
  • Consistent Income Stream:
    • Income REITs are mandated to distribute at least 80% of their net after-tax profits as dividends, providing a stable and consistent income for unit holders.
  • Diversification:
    • When combined with other asset classes, REITs provide a unique diversification tool within an investment portfolio.
  • Tax Benefits:
    • Enjoying various tax considerations, REITs are exempt from income tax, stamp duty, value-added tax, and capital gains tax in some instances.

Parties Involved in REITs:

  • Promoter:
    • Role: Involved in setting up a real estate investment trust scheme, the promoter is the initial issuer of REIT securities and seeks regulatory approvals.
  • REIT Manager:
    • Role: A licensed company providing real estate and fund management services for a REIT scheme on behalf of investors.
  • Trustee:
    • Role: Acts on behalf of investors by assessing investment proposals, ensuring compliance with the Trust Deed, and overseeing proper asset investment.
  • Project/Property Manager:
    • Role: Oversees the planning and delivery of construction projects within the REITs.

Current Issuers in the Market:

  1. ILAM:
    • Name: Fahari
    • Type of REIT: I-REIT
    • Listing Date: October 2015
  2. Acorn Holdings Limited:
    • Name: Acorn ASA
    • Type of REIT: I-REIT
    • Listing Date: February 2021
  3. Acorn Holdings Limited:
    • Name: Acorn ASA
    • Type of REIT: D-REIT
    • Listing Date: February 2021

As the real estate landscape continues to evolve, REITs stand as a bridge, connecting investors with the lucrative world of real estate while providing the flexibility and advantages that come with a regulated investment structure.