A Different Way to Own Buildings: What Are REITs?
You can share in rental income without buying a whole building. Meet REITs — real estate you trade like a stock.
Shinhan Financial announced it will merge Shinhan Asset Trust and Shinhan REITs Management into a single real estate finance company. The word REIT shows up constantly in this kind of news, yet rarely gets explained. It is worth knowing if you are interested in property but the price of a whole apartment is out of reach.
What is a REIT?
A REIT is a company that pools money from many investors, buys buildings, and distributes the rent it collects. It owns things like office towers, shopping malls, logistics centers, and hotels. Its shares are listed on the stock exchange, so you can buy in for the price of a normal share rather than the price of a property.
How is it different from buying property directly?
Three big differences. First, the amount. A building — or even an apartment — costs a fortune, while a REIT starts at the price of a single share. Second, liquidity. Selling property can take months; a REIT can be sold during market hours. Third, no management. Finding tenants, handling repairs, and dealing with taxes is the manager's job, not yours.
So is it all upside?
No. The most important weakness is sensitivity to interest rates. REITs typically borrow to buy buildings, so rising rates raise interest costs and squeeze the money available for dividends. Rising rates also lift the yield on safer alternatives like deposits and bonds, which weakens the reason to hold a REIT at all. That is why REIT prices often struggle in a rate-hiking cycle.
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