What is Real Estate Investment Trust (REITs)?
Real Estate Investment Trust (REITs) are funds that invest in a portfolio of income generating real estate assets such as shopping malls, offices or hotels to generate income for unit holders of the fund.
Revenues generated from these real estate assets are primarily derived from rental income which is then distributed at regular intervals to investors as dividends. Like other securities, units of REITs could be bought and sold on exchange at market driven prices.
Advantages of Real Estate Investment Trust (REITs)
1. Portfolio Diversification
REITs typically own multi-property portfolios with diversified tenant pools, this means that investors holding REITs will face less risk than those who own real estate directly.
2. Tax Benefits
For income distributions, investors will enjoy a tax-exempt distribution which comes in the form of dividends in the REITs structure.
3. Regular Income Distribution
REITs are required to distribute 90% of taxable income each year so as to enjoy tax exempt status by IRAS, this means that REITs will typically have regular cash flows.
REITs can be traded on exchanges like a stock and provide investors with an liquid stake in real estate.