REIT Horizon

With the Treasury being run by the same team as before the election, the chances of Real Estate Investment Trusts coming into force increases. In March the Treasury released a discussion document. This was greeted well by Citibank, as they saw a flexible gearing structure being outlined.

What is a REIT? A corporation or trust that uses the pooled capital of many investors to purchase and manage income property (equity REIT) and/or mortgage loans (mortgage REIT). REITs are traded on major exchanges just like stocks. They are also granted special tax considerations. REITs offer several benefits over actually owning properties. First, they are highly liquid, unlike traditional real estate. Second, REITs enable sharing in non-residential properties as well, such as hotels, shopping centres, and other commercial or industrial properties.

What it means to you: More clarity is required on the details but there are still a number of ways to invest in commercial mortgage property either through SIPP structures or eventually through REIT vehicles. REITs do not necessarily increase and decrease in value along with the broader market. However, they pay yields in the form of dividends no matter how the shares perform. REITs can be valued based upon fundamental measures, similar to the valuation of stocks, but different numbers tend to be important for REITs than for stocks.

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