With property prices low, investors see now as the time to invest in real estate, and many are using REITs to help them to do so
Until just a few years ago, most UK investors had never heard of a real estate investment trust, REIT. This is because this investment vehicle was not available for UK investors before January 2007.
However, despite the fact that it is such a new investment vehicle does not mean that it is one without a good track record. In the US, REITs have been available since the 1960s and, in Australia, since 1971. To date, 20 countries have introduced legislation to make this investment vehicle available in their territories.
A Real Estate Investment Trust allows investors to invest in a portfolio of property without actually owning the property. The purchase, maintenance and leasing of the properties is taken care of by a holding company.
It is a very simple and low risk way to invest in real estate. The returns are generally very good and much better than those offered by more traditional investment products. However, returns are not guaranteed so choosing the right portfolio to invest in is key to securing good returns. The fact that even small private investors can invest in commercial property using this investment vehicle had drawn a lot of new money into the commercial property market. Some of the interest has come from people looking to boost their private pension funds because of the tax benefits of investing in commercial property.
A good example of a UK based real estate investment trust
McKay Securities PLC realised the benefits of Real Estate Investment Trust (REIT) status, so they joined the scheme early on. They have been buying and developing commercial real estate in the South East England, since 1946. They floated on the stock market in 1959. From the outset, they gave their shareholders great returns weathering two major recessions. Their REIT status makes it easier for all kinds of investors, in particular small private investors, to get involved in commercial real estate. The fact the company has such a long and good track record of commercial property investment and development means that they have had no problem attracting new investors.