A guide to investing in Real Estate Investment Trusts (REIT)

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REIT does not involve buying, but investing. (Rawpixel pic)

Property is a prime investment for most Malaysians as it promises stable return growth over the years.

However, it also involves putting in a big deposit, going through loan alternatives, or being subjected to property-related tax.

As a lower-cost alternative, one can consider Real Estate Investment Trusts (REIT).

With REIT, you don’t actually have to buy a property, but simply invest in a low-capital property index that you can easily afford.

But first, here are some important facts to note about REIT.

What is REIT?

REIT is similar to a unit trust that owns or finances income-generating properties.

It involves investing your money in a pool of property stocks with other investors and the trust manager will decide which property to sell or buy to give you maximum returns.

REIT offers you a generous dividend yield with decent capital appreciation growth. So, if you invest in REIT, it will help you generate good and stable profits in the long run.

How does REIT generate income for you?

REITs do not invest in all types of properties. They usually invest in retail, hotels, industrial and commercial properties, office, healthcare, warehouse, car parks and residential houses.

Basically, they aim to invest in properties that promise good rental and capital growth in the future.

When the market value of the properties increase, they sell them at a good profit and earn via capital appreciation.

REITs also get a consistent supply of income from the rentals of their properties. They, in turn, distribute this income to you in the form of dividends and capital appreciation.

REIT builds more profit if you invest for the long term. (Rawpixel pic)

How much profit would you receive from REIT?

REITs listed in Bursa Malaysia have to distribute 90% of their yearly taxable income as dividends if they want to enjoy the income tax exemption from the government.

That means you are guaranteed to get a consistent yearly dividend on your investment. Plus, the value of REIT appraises if you invest for the long term.

In other words, you can enjoy further profit when you sell it off in the future.

What are the risks of investing in REIT?

REIT gives you the best investment deal when it comes to risk and rewards. Overall, REITs have fewer risks than investing in stocks or forex.

On top of that, if you invest in top quality REIT, then the risk is even lower.

With REIT, your money will have to be tied up for the long term to get greater returns. So, if you cannot afford to put away your money for more than 12 months, it won’t generate much value for you.

Other than that, REITs are impacted by the volatility in the property market or the economic stability of a country. The market becomes more sluggish and the growth is slower if the economy of the country is in a state of unrest.

But the good thing is, REIT investments rarely decline in value which keeps you in a favourable position to generate a positive return.

Compared to stocks, cryptocurrencies or forex, this is one of the safest and most stable investments in Malaysia.

For as low as RM1,000 you can start investing in REIT. (Rawpixel pic)

What is the cost of investing in REIT in Malaysia?

You can get started in REIT by investing as low as RM1,000. Every year, you will have to pay tax on your dividend return.

Other than that, there is no significant cost as you will not be subjected to income tax or Real Property Gains Tax (RPGT).

How to invest in REIT in Malaysia?

Choose REITs listed in Bursa Malaysia Stock Exchange as they are regulated and secured.

Do complete research on REIT including the pros and cons to decide if it’s really the right investment for you.

Once you have an understanding of certain types of properties or locations, find a REIT that focuses on those things. Then, open a stockbroking account and buy your selected REITs to start earning!

This article was contributed by PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.