Real Estate Investment Trust (REIT)

The definition of REIT or Real Estate Investment Trust as given by the investopedia is:

"A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax consideration and typically offer investors high yields, as well as a highly liquid method of investing in real estate."

There are three types of REITs,

1) Equity REITs: REITs that invest in and own properties. Its major source of income is from the rental that are paid by the tenants every month.

2) Mortgage REITs: REITs that own property mortgages. These REITs loan money to property buyers and the revenues are generated through the interest that they charged on the mortgage loans.

3) Hybrid REITs: REITs that are the combination of the equity REITs and mortgage REITs. 

The first REIT in Malaysia is the Axis REIT which was listed on the 3rd August 2005 with the investment portfolio comprise primarily commercial, office and office/industrial real estate. Up until today, there are 13 REITs in Malaysia. Some of the largest REITs are Sunway REIT, CapitaMalls Malaysia Trust and Axis REIT.

REIT can be bought through the stock exchange and the return that the investors will receive are from the capital appreciation and also the dividend that are paid out usually on a semi annual basis. In Malaysia, REITs are required to pay out at least 90% of their taxable profit in dividends.

As REITs holds rental producing properties, we can expect that the dividends pay out by REITs to be consistent over the years. This is good for investors that are looking at a way to 'park' their money in a safe and secure investments and yet enjoy a stable and regular income stream over the long term.