Some people purchase physical property to either resell or rent out. However, buying shares of a real estate investment trust (REIT) or property fund is a better option for many.

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

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

 

REIT

Diagram of a typical REIT structure. The shareholders own a corporation, which in turn owns property.

 

A Good REIT is the Best Way to Invest in Property

Secondly, buying into a REIT or property fund also removes the hassle of managing the assets yourself. A landlord must spend time looking for tenants, making repairs, and collecting income. But shareholders of a REIT or fund can have more time for other things.

It’s also worth noting that this same benefit helps investors diversify abroad. While owning a REIT in another country works well, owning physical property and managing it from abroad is often impractical.

There are many different REITs and funds available all throughout the Asia-Pacific region. They are common in countries which already have developed financial sectors such as Singapore, Australia and Japan, although they’re increasingly 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 commercial, industrial, or residential.

In summary, most people are better off owning shares in a REIT, property fund, or even just a business which owns real estate. 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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