It's possible to invest in property all over the world without a mortgage and get an income from it. One Fool shares his (primitive!) thoughts on Real Estate Investment Trusts.
I, for one, could do with more exposure to property, especially because I don't own my own home. An attractive-looking option is to invest in one of the new UK Real Estate Investment Trusts (REITs), which popped into existence on 1 January.
Property investment companies can this year convert to the new REIT status, thus saving themselves a lot of tax, and tying themselves to pay at least 90% of taxable income (i.e. rental income) to shareholders.
We shouldn't rush in though. Ian McBryde, fund manager at F&C Property Asset Management, argues that REITs are typically more volatile than direct property investment and are affected by changes in the equity market as well as the property market. Still, volatility by itself shouldn't necessarily be a major concern for many Foolish investors who, like me, consider investing to be a long-term concern, which enables us to ride it out. (Volatility is par for the course: see The Market's 11% Return.)
Where to look for your REIT
The nine companies that have already converted to REITs are:
UKREITs |
|---|
British Land (LSE: BLND) |
Brixton (LSE: BXTN) |
Great Portland Estates (LSE: GPOR) |
Hammerson (LSE: HMSO) |
Land Securities Group (LSE: LAND) |
Liberty International (LSE: LII) |
Primary Health Properties (LSE: PHP) |
Slough Estates (LSE: SLOU) |
Workspace Group (LSE: WKP) |
According to REITA, a trade association for REITS, seven more companies are likely to convert soon, and three or four more are considering it. It's not very many.
Some investment companies suggest that we should look abroad at more established REIT markets for greater choice. However, for the more primitive investor with little time, such as myself, I think this dispenses with the relative simplicity of investing in REITs. So, if you are a primitive investor too and you're not comfortable with UK REITs at present, you might want to wait until you are. Why not read and learn more about them in the meantime?
More on my primitive thoughts
It's still very early days but, as I suggested in an earlier article (Property Vs. Shares), the focus of REITs seems to be heavily on the dividend (income paid to investors), as opposed to the share price. British Land, for example, said: "The company has already announced a move to quarterly dividend payments and that it expects the first full year REIT dividends to be at least 33 pence per share, an increase of 94 per cent on 2005/2006."
My main concern is my lack of knowledge of the commercial property market (e.g. offices) which is where REITs seem to be focused. My initial thoughts are that the long-term situation should be good, because REITs invest all over the world and many parts of the world are likely to grow significantly over the next forty years. For much of this time, office space in many cities could be at a premium.
Also, when compared to funds that invest in the stock market, there should hopefully be fewer costly errors by stupid humans! I think that it's probably a lot easier to decide whether property in a certain city or country is likely to do well than it is to pick shares, simply because it's all about the bricks-and mortar you can see before you, and about supply and demand. There's no abstract value to understand.
Still, that doesn't mean that a REIT can't be hideously over-priced like any other share can, so do your research. You could chat to other knowledgeable Fools on our Property Sector discussion board.
> Pay less for your property: compare mortgages through The Fool.