What is Real Estate Investment Trusts?

Real Estate Investment Trust

It refers to a company that owns and operates income in real estate. REITs are regulated investment channels that enable collective investment in real estate, where investors pool funds and invest in trust to earn profits or income from real estate.

They source funds to acquire and build real estate and sell in assets that are sold in the markets for profits generation, which is then distributed to the shareholders at the end of the financial year.

How REIT operates

Like other income-generating firms, real estate trust fund works in income-producing real estate or related assets, which may include shopping malls, office buildings, hotels, resorts, apartments, and warehouses. The central core mode operation is based on the exponential growth rate of a given economy, which is figured by the stakeholders before an investment is settled.

Due to the challenges associated with real estate development and undersupply of housing, which have proved somewhat hard towards the advancement of the real estate sector, the government has instead tried to provide better remedies to encourage investments in real estate investment.

The government promotes trading of stocks on REITs, which investors can buy sell as shares as an investment plan. The government also offers transparency and the ability to operate a deal-by-deal basis.

Types of REITs

There exist three types of real estate investment trust:

• Income REITs (I-REITs)

This is a form of REIT in which investors pool their resources to acquire long-term income-generating real estate, including housing, commercial, and other real estate. Investors gain through capital appreciation and rental income, which is then distributed to unitholders at agreed duration.

• Development REITS(D-REITs)

This is a type of REIT in which resources are pooled together to acquire eligible real estate for development and construction projects, which may include housing or commercial projects.

D-REIT can be converted to I-REIT once the development is completed, where the investors in D-REIT chooses to sell, invests, or turn their shares into I-REIT.

• Islamic REIT

Islamic REIT is a unique type of REIT that invests primarily in income-producing, Shari'ah compliant real estate. A fund manager is required to conduct a compliance test before investing in real estate to ensure that is Shari'ah compliant and that non-permissible activities are not done in real estate and, if so, then on a minimal basis.

Benefits of Real Estate Investment Trusts.

REIT has a significant advantage, unlike other investment trust funds; they are exempted from double taxation, i.e., corporate tax and income tax, which is a substantial boast except for the payment of withholding tax on interest income and dividends.

Other advantages may include capital access and access to investment that is the mobilization of savings from individuals and groups, leading them to invest in the markets directly, offering the middle-income class easier access and ownership of the real estates sector.

Simple tax treatment, unlike other partnerships, tax matters for REITs investors are straightforward. REITs are exempted from VAT and stamp duty; thus, their tax purposes are allocated to capital gains, ordinary income, and return on capital.

However, REIT may have few shortcomings like any other investment venture,

• Limited pool of investors especially institutional investors like pension schemes allowed investments to a tune of 30%

• Competition from other assets classes, e.g., treasury bills and stocks

• The economic and political situation that could lead to depreciation in the value of a property.