While some choose to purchase physical property to either resell or rent out, buying into a real estate investment trust, or REIT, may be a better option for many.

In the most basic sense, REITs are companies which own a portfolio of properties. By holding shares in one, you indirectly own several different pieces of income producing real estate. A small fee every year, usually less than 2%, is paid for management expenses.

This is great for several reasons.  REITs are not only diversified, but will usually invest in assets which require a large amount of capital such as offices and shopping malls. These properties are usually out of reach for individual investors, unlike residential property, but provide higher yields in most cities.

REIT

A diagram of a typical REIT structure.

 

A Good REIT is the Best Way to Invest in Property

Secondly, buying into a REIT also removes the hassle of needing to manage the property yourself. A landlord needs to spend time looking for tenants, making repairs, and collecting income. But shareholders of a REIT or property fund can have more time for other things. It’s also worth noting that this same benefit helps property investors diversify internationally. While owning a REIT in another country works well, owning physical property and having to manage it from abroad may be impractical.

There are many different REITs and property funds available all throughout the Asia-Pacific region. They are common in countries that already have developed financial sectors such as Singapore, Australia and Japan, although they can increasingly be found in places such as Thailand, Cambodia, and Malaysia as well. Most funds are very general in nature, but others invest in a specific sector such as retail, industrial, or residential.

In summary, most people are better off owning shares in a REIT or property fund. This is especially true when investing in frontier markets. It’s hard to do things yourself in places such as Cambodia or Vietnam unless you speak the language and have the connections.

About Chandra Alatas

Chandra is the assistant manager of a large portfolio of residential and commercial real estate with holdings in Singapore and Jakarta, Indonesia. He is a specialist in property and REITs in Southeast Asia and the Middle East.

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