Want to buy a physical retail lot to collect a steady stream of rental income but don't have enough money? You could try investing in real estate investment trust (REITs), which are formed by companies that purchase and manage real estate using funds pooled from shareholders. Dividend payouts can be generous and you get exposure to a diverse portfolio of commercial properties.
"Typically, M-REITs pay a yield of 8% to 11% per annum."
"The dividends I get from investing in REITs and the returns I get from investing my own property are the same, but 10% less for the REIT dividend because of tax. Assuming your yield from REITs is 7.5%. Once you take away the 10% withholding tax, which is 90% of 7.5%, you will still get 6.75%. That's a very good return."
"If you're looking at purely dividend returns, and let's say you're a new retiree who has RM100K from your EPF account, my answer is that only a REIT can give you a return in excess of 6% over a long period, and many give capital appreciation over time."
"Unlike Stocks, REITs usually state upfront that all or a high percentage of profits would be fully distributed in the form of dividends. Thus their main advantage over stocks is their predictable, dependable and frequent income distribution."
"M-REITs are deemed more defensive than certain bonds due to the nature of securities themselves. Bonds are really a debt instrument issued by the borrower company, whose level of risk or default and thus, return, is reflected by an independent rating agency. Bonds return are relatively low and static compared with REITs"
"If the assets are in a good location with well management, their capital value will increase over time. Even the buildings are old, the land value will increase. At some point, the cost of land may be higher than the value of property."
DOWNSIDES to REITS
1. M-REITS will be subjected to equity market risks. Their price movement are more vlatile, unlike actual properties, where value is determined by recent comparative transactions, and subject to 'willing buyer, willing seller'
2. Entry price levels are also factors, that can be used to minimize capital losses, which are a real threat in bearish market. As a proxy to property market, one can also buy REITs in the same manner as properties, such as when the prices of actual properties are low.
To end this, there is upsides & downsides about REITs investment. This can be optimized to more upsides if we could do some research and invest into REIT that will give best returns & appreciation. The returns of REITs have been around 7%, while FDs' have been around 4%.
REITs Picks
1. Axis REIT (RM2.12) - has an active pipeline of acquisitions and dispositions. This enables the REIT to have active yield management to lock in profits on capital appreciation, thereby enhancing overall yield in the long term.
2. CapitalMalls Malaysia Trust (CMMT) - owing to its good record in Singapore. It has the ability to raise values and rentals, as well as to maintain the yields over a long period. The investor is almost guaranteed a return that is in tune with the value of their current assets. CapitaMalls Asia has successfully re-branded Mines Shopping Fair, which is one of the three properties injected into its REITs. The pedigree of the most successful REIT in Asia with strong competence, expertise and ability to capitalize on the holding company's inherent strength.
3. Sunway REIT (SunREIT) (RM0.99)- IPO price (RM0.90)(8 July 2010) the largest REIT in Malaysia, because it owns asset with proven track record. These assets are located in award-winning townships. Given that the properties are located in a planned township, SunREIT properties do not facebthe risk of crowding or immediate competition from similar properties being developed next door. SunREIT is the largest elephant in the room.
4. UOA REIT (RM1.49)- It's got a steady stream of projects that it can feed into REIT. It's run by creative people, who are also developer and the REIT manager.
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