Investing in REITs: Benefits

Real Estate Investment Trusts, also known as REITs, is a company that owns, finances, or operates income-generating real estate. REITs are well-known for providing a steady stream of income for investors; therefore, investing in REITs may seem like a lucrative offer for most people. 

Most REITs are liquid in nature and are usually traded like stocks. The “real estate” involved mostly includes properties such as apartments, hotels, offices, and retail. 

REITs in the UAE

The Emirates REIT is the oldest Real Estate Investment Trust in the UAE. It prides itself on being one of the largest, Sharia law-complying real estate investment trusts. It was incorporated in the United Arab Emirates in 2010, and, since then, it has added around 855 million USD to its purse.

Therefore, investing in the Emirates REITs may seem like something you would want to do. However, keeping yourself thoroughly informed before investing in such a venture would be the wisest thing to do. Therefore, here are some things to know before investing in REITs in the UAE.

• The REITs in the UAE allow investors to invest in real estate across the country. It enables owners to raise capital through its income stream without having to sell the property. By leasing the property on rent, the investors receive a steady flow of hefty income without having to part with the ownership of their property.
• To invest in REITs, the investor can buy its shares. The procedure is exactly similar to that of buying shares of any other regular company at the share market.
• Currently, there are two REITs in the UAE that are listed on the NASDAQ Dubai. These two REITs are the Emirates REIT and ENBD REIT. The former got listed in April 2014 while the latter had its IPO in March 2017.

As an investor, questions such as why you should invest in REITs instead of buying shares from any other big company that is listed on the share market could arise. To remove such doubts before investing in REITs, we have listed the benefits of investing in REITs in the UAE.

Income and long-term growth

• Upon investing in REITs, the investor shall be able to receive competitive long-term rates of return which, in turn, would complement the returns obtained from other bonds and stocks.

High dividend yield

• Firstly, the dividend received upon investing in REITs is significantly higher as compared to other equities. Secondly, REITs are known to withstand the variable market conditions and keep producing a steady flow of income for the investor.

Liquidity

• The shares belonging to publicly-listed REITs, i.e., the Emirates REIT and the ENBD REIT are easily traded like the shares of any other company. This is because these companies are listed on NASDAQ.

Enhanced diversification

• Investing in REITs ensures that there is a lower chance of asset clashes. The same has been known to hold true throughout history. Therefore, you, as an investor, have a great opportunity to diversify your investment.

Inflation hedge

• Unlike other companies or investment opportunities that may plummet during a period of inflation, real estate prices and trends have been observed to have grown in UAE during such periods of uncertainty. 

Therefore, this feature of real estate investments supports the dividend growth of REITs. It also provides for a steady flow of income in an otherwise financially difficult and unreliable time.

Communication

• REITs can help investors stay abreast of all developments happening in the field. You, as an investor, can research and stay informed about the real estate market.

Another reason why investors often consider investing in REITs is that although it possesses similar risks as investing in the share market, it has far lesser risks as compared to simply investing in property.

To invest in property and obtain a high yield on dividends, you would require to have a much larger capital; however, this would not be required for investing in REITs. In the UAE, real estate is a very lucrative area to invest your money in, especially with the rise in demand for property in the country. 

Conclusion

Fortunately, investing in REITs helps save a significant amount of money while providing high returns. Before investing, ensure to do your due diligence so that you can be well aware of any risks that could prove to be a hindrance to your investment.

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Frequently asked questions

1. What are some of the REITs to invest in Dubai?

• Emirates REITs and ENBD REITs are some of the best REITs to invest in Dubai.

2. Is Emirates REITs Sharia-compliant?

• Yes, the Emirates REITs are Sharia-compliant.

3. How can I buy Emirates REIT shares?

• You can buy Emirates REIT shares on NASDAQ Dubai. You can also trade the shares through an Emirates NASDAQ Broker.

4. How many REITs should I own?

• One should have REITs making up not more than 25% of his well-diversified dividend stock portfolio.

5. How to pick a REIT to invest in?

• While choosing a REIT make sure to take a good look at the management team and be aware of its track record. A well-researched investment would lead to a good investment.

6. What are the different kinds of REITs?

There are three basic types of REITs:

• Equity REITs: It generates income from rents
• Mortgage REITs: This helps in earning money from interest
• Hybrid REITs: It is a combination of (1) and (2) thus earning money from both rent and interest.

7. What is the average yield of a REIT?

• The average dividend yield for a REIT is 4.3%. However, REITs can help earn up to a very high dividend upon one’s investment.