David Koch: Putting your trust in trading places | Australian Markets

If you’ve been following the property market these days and, let’s face it, who hasn’t, you might need come throughout one thing referred to as a REIT, or real estate investment trust.

REITs are a great option to get publicity to the Aussie property market with out having to fork out for a deposit.

And when you play your playing cards proper they are often a fairly respectable addition to your investment portfolio. But like something in finance, there’s some superb print it is best to have a look at earlier than diving in.

What is an REIT?

A real estate investment trust is mainly a company or trust that owns, operates or funds income-producing real estate. Think workplace towers, procuring centres, logistics warehouses and house complexes.

They acquire rent from tenants and go that income on to buyers in the shape of dividends. And the growing (or reducing) worth of the properties is mirrored in the asset backing of the trust, which underpins the share price.

You can buy models in REITs, similar to shares. Most are listed on the ASX and trade like some other stock, which implies you’ll be able to invest with as little as a few hundred {dollars} — not the six or seven-digit sums you’d need to buy a block of outlets outright.

REITs have been round in Australia for the reason that Seventies, however they’ve grow to be more widespread in latest years due to online brokers and exchange traded funds. Today, the listed-property sector in this nation is value tens of billions of {dollars} — so that is no fringe investment.

What makes REITs interesting?

For starters, REITs may be a useful source of common income.

Because they’re required by law to pay out most of their earnings (normally about 90 per cent), they’ll ship larger dividend yields than many different stocks. That’s music to the ears of retirees or income-focused buyers.

They’re additionally a option to diversify your investment portfolio.

If you’re already invested in Aussie shares and residential property, REITs can provide you publicity to a completely different slice of the property market — business and industrial real estate.

And there’s comfort. You don’t have to fret about tenants calling you at 2am as a result of the recent water’s gone.

There are no repairs, no charges and no strata conferences. The trust manages all that — you simply acquire the dividends and monitor your investment like some other share.

Are REITs a ‘safe’ guess?

Let me be clear — no investment is 100 per cent protected. That consists of REITs.

While they’re usually more steady than high-growth tech shares, they’ll nonetheless rise or fall relying on what’s occurring with the property market and rates of interest.

When charges go up, the price of debt will increase for REITs, which may eat into their income.

That’s one thing we’ve seen over the previous couple of years. Some listed property trusts have taken a hit as buyers fear about rising charges and falling business property values.

And then there’s the sector risk.

A retail-focused REIT that owns a bunch of suburban procuring centres is uncovered to very completely different dangers than one targeted on logistics warehouses or medical centres.

If client spending slumps or e-commerce eats into bricks-and-mortar retail, that procuring centre trust may battle.

That’s why you need to spend a bit of time trying beneath the bonnet of any REIT earlier than investing.

What type of properties does it own? How a lot debt is on the books? What’s the occupancy fee? Who are the tenants and how long are their leases?

Don’t simply chase the most important dividend yield you’ll find as a result of, in many circumstances, a high yield may be a purple flag quite than a inexperienced gentle.

Are REITs good worth in 2025?

Right now, a quantity of investment analysts reckon REITs are beginning to look engaging again — particularly as rates of interest begin to ease.

After a tough run by means of 2022 and 2023 when rising charges spooked the market, many REITs at the moment are trading at a huge low cost to the worth of the belongings they maintain. That means you can be shopping for property publicity for much less than the worth of the underlying bricks and mortar.

And with some elements of the business workplace property market beginning to stabilise, there’s scope for stable, long-term returns when you choose the correct ones.

Plus, if the RBA retains slicing charges, that’s a tailwind for REITs: decrease borrowing prices, larger income and probably higher dividends.