REITs (Part 1)

In my previous post, Direct Real Estate Investment vs. REITs, I have shared my view on the goodness of REIT in which I do not require huge upfront capital for properties investment; I do not need to carry any debt; I do not need to seek for suitable tenants; I can sell my holding whenever I like as long as my selling price is matched in Bursa; my fund manager will collect rental from tenants and issue payment as dividend to me.

REIT can be purchased directly from Bursa. It is so easy. Its transaction cost is exactly the same as buying shares. Now the question is how we select the right REIT to invest.

Of course, we need to do some homework before putting our hard earned money into REIT. Just like unit trust investment, you need to know how is unit trust is operated, its fund objective and strategies before making any investment. Basically, the structure of REIT is the same as unit trust. The only difference is that majority unit trusts are investing in shares or bonds, both local and overseas, while REITs are in local and/or overseas properties.

Since REIT is pooling investors’ funds for properties investment, we need to know what properties they are investing in. Fund Managers may own shopping centers, office blocks, apartments, condos, commercial showrooms, hotels or any other commercial properties for rental income. Therefore, you should first to understand the nature of properties they are holding.

Next, you should study the location of these properties the Fund Manager is holding. As a rule of thumb, seek for REIT that is holding well-known popular properties. For example, HEKTAR is holding Subang Parade and STAREIT is having Lot 10. These are famous shopping centers around KL and are situated in the strategic location with lots of tourist and local shoppers around.

Of course, you need to check the occupancy rate of these properties. Only consistent high occupancy properties will ensure the sustainability of your dividend cheques that come to you.

Now, I have share my view on how to choose suitable REIT. In Part 2 of this post, I will show you how to decide when to buy.