REIT Investors around the world can now take advantage of a global property boom in commercial real estate. Whereas several years ago, only six other nations, including the United States, allowed investors to invest in real estate investment trusts, there are now nearly 24 countries that either have established REITs or are structuring them.
REIT’s allow investors to become exposed to real estate without having to involve themselves in private investment outfits or direct ownership. Typically, real estate investment trusts own offices, apartments, and other kinds of commercial real estate, including warehouses, shopping malls, and hotels. Shareholders receive dividends based on 90% of all taxable income.
Examples of two countries that are developing REIT laws for investors:
· Germany is finalizing certain REIT-related rules that will be made into laws in 2007.
· The United Kingdom’s REIT law will go into effect on January 1, 2007.
Also, from 2003 and 2006, the market cap of non-US real estate securities increased to approximately $400 billion-a 300% growth.
Types of REITS:
Equity REITs are in charge of the value/equity of their real estate assets. They invest in/own properties.
Mortgage REITs buy mortgage-backed securities or existing mortgages or lend money to real estate owners for their mortgages. These type of REITs are involved in investing and owning property mortgages, and revenues mainly come from interests earned on mortgage loans.
Hybrid REITs invest in mortgages and properties while using the investment strategies of both equity REITs and mortgage REITs.
Currently, the majority of institutional-quality properties are securitized in Europe, so American retail investors could have an opportunity to invest in markets abroad. Germany could be the largest site for property investment in Europe since it is that continent’s largest economy. Open-ended retail funds in Germany currently own $101 million in commercial real estate. Due to a decrease in real estate value between 2004 and 2005, bribery scandals related to REIT funds in Germany, and a growing interest by the international community to invest in the country, the REIT law was more quickly established there. Although residential properties are not allowed to be owned by REIT’s at this time, experts say that more than $150 million in German real estate could enter the international market.
In the United Kingdom, analysts believe the new law will lead to a slew of acquisitions and mergers and that large companies such as British Land and Land Securities Group will end up buying the smaller public companies.
Potential Negatives of Jumping into the Global REIT Market:
· REIT investors must deal with the potential risks that come with any type of real estate investment.
· There are also the added possibilities of decreased liquidity, political instability, currency market fluctuations, and economic uncertainties.
Investors wishing to invest in REIT’s can either:
· Buy their shares directly on an open exchange.
· Invest in a mutual fund specializing in public real estate.
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