The great Australian dream is to own property so it’s no surprise that Australia’s love affair with property investment continues to thrive. While many choose the traditional form of investing in residential property, listed property trusts or real estate investment trusts (REITs) have risen in popularity in recent years. If you are interested in investing in property securities, Melbourne locals can rely on the team at SG Hiscock.
What Are REITs?
A real estate investment trust (REIT) is a company that owns, operates, or finances real estate. A REIT owns different kinds of income-producing real estate, such as shopping centres, hotels, office buildings, apartments, resorts, self-storage facilities and warehouses. Investing in a REIT is an easy way to add real estate to your portfolio, providing diversification and access to historically high REIT dividend payments. The S&P/ASX 300 A-REIT Index provides the broadest coverage of property trusts listed on the Australian share market.
Are REITs Risky?
Generally, REITs are not considered risky, especially when they have diversified holdings and are held as part of a diversified portfolio. However, REITs are sensitive to interest rates and may not be as tax friendly as other investments.
Interest Rate Risk – The biggest risk to REITs is rising interest rates, which reduces demand for REITs. In a rising-rate environment, investors typically opt for safer income options. However, it can be argued that rising interest rates are an indicator of a strong economy, which will then mean higher rents and occupancy rates.
Choosing the wrong REIT – Another factor that increases risk is choosing the wrong REIT. For instance, suburban shopping centres have been in decline. As a result, investors might not want to invest in a REIT with exposure to a suburban shopping centre. Trends change, so it’s important to research the properties or holdings within the REIT to be sure that they’re still relevant and can generate rental income.
Do All REITs Pay Dividends?
In order to be classified as a REIT, the property fund must pay out at least 90% of taxable profits as dividends. This provision allows REIT companies to have exemptions from most corporate income tax. REITs dividends are taxed as ordinary income to shareholders regardless of the holding period.
Investing in REITs can be a great, income-producing alternative to buying property directly. However, investors shouldn’t be swayed by large dividend payments since REITs can underperform in a rising interest-rate environment.
Invest With Us in Global Property Securities
For the best results, its’ important to have specialist property investors in each region – this is the most effective way to manage a global property securities portfolio. Our team is highly experienced across the world’s major property markets, allowing them to assess the risks and opportunities in the asset class. With access to a diverse range of funds, our portfolio can provide access to property assets such as:
- CBD and suburban office buildings
- Regional / sub-regional and retail centres
- Logistical warehousing
- Apartment buildings
- Healthcare facilities
- Data centres
- Retirement assets
- Residential developments
For more information or to discuss property securities with our team, get in touch with us online or by calling 03 9612 4600.