MoneyTimes - February 6, 2013

Posted by Jill Kerby on February 06 2013 @ 09:00



There are a different ways to invest in property. You can buy a house or apartment outright, or with a mortgage and rent it out, earning an annual return. Landlordism, however, is not for everyone.

 You can buy property with a group of people and hire someone else to run the ‘syndicate’ for you. The rent covers all the costs and taxes and it may pay a dividend. Most people hope to sell at an agreed date and make a capital gain profit.

 You can also buy a pooled property fund usually from a life assurance or investment firm and after a period of years the fund matures (after the properties are sold) and you, hopefully earn a profit.  These funds remain untaxed until maturity but the maturity date can sometimes be a moveable feast…especially if there is a property crash.

There’s another way, and it is only becoming available in Ireland this year, after finally being announced in the 2013 Budget:  Real Estate Investment Trusts or REITS.

 An alien, landing his spaceship in the middle of the great bog of Allen and looking at the great devastation that property investing has wrought in every direction for about 300 miles would wonder about the arrival of REITS, and especially about the cheerleaders, who certainly include the 400 property, financial, accounting and legal industry practitioners who showed up at a Dublin Conference organised by the REITS Forum, a trade body.

Real Estate Investment Trusts, to begin with, have nothing to do with trust law anymore, though that moniker has stuck. Instead, they involve privately listed companies on stock exchanges which invest in portfolio’s of property that they then administer and collect rents on behalf of the REIT shareholder.

The attractions of a REIT, over direct ownership, syndicates or property funds include that they are more transparent: the share price is what it is on any given time of the day and shares can be traded.  The portfolios are often quite large and diversified thereby spreading shareholder risk.  And they attract special tax treatment: REITS don’t pay corporation tax, though they are liable for tax on rental income and shareholders pay income tax on dividends and CGT on capital gains (if the shares are sold.)

What the new REITS proposers want investors to believe, is that they are less risky than any other form of property investing because there are limits imposed on ‘leverage’ and the more generous way profits are distributed.

 According to the REITS Forum, (www.reitsforum.ie) if we’d had a healthy REITS market during the Tiger years, there would have been fewer “overpriced, over-geared, and undiversified single asset investments”.  They insist that these “competently constructed and well diversified portfolios… will be proactively managed by specialist financial professionals.”

 Hmmm.  That’s what every accountant or stockbroker who flogged Hungarian supermarket investments to ‘syndicates’ of wealthy doctors, or the complicated ‘mezzanine” finance deals stuffed full of student housing in the north of England were also presented.

Many amateur landlords who thought their pension was guaranteed by buying two or three buy-to-let apartments in the wilds of Leitrim  (or west Dublin) were also advised by property “professionals”.

 REITS are just another way to trade an asset on the stock market – this time a company that invests in properties and collects and distributes rental profits to shareholders.

Financial advisors say that they can diversify your existing pension fund that happens to be short of property or round out a wider portfolio of personal assets that includes your income, your family home, savings accounts, life assurance protection, shares, bonds and any other asset you may have.

“What people want to avoid,” one said, “when the hype about REITS and how ‘safer’ they are is that a REIT is all you need if you are interesting in investing in property.”

So how can you buy a REIT? As the REIT companies are listed on the Irish Stock Exchange in the next few months all you have to do is contact a stockbroker or use your own on-line trading account to buy one. The arrangement cost is whatever commission you pay the broker or that applies to your e-account.

REITS can be included in pension funds and post-retirement (ARFs) Approved Retirement Funds, so discuss the purchase with your independent pension advisor. Make sure you fully understand all the exit and tax implications of your REIT.

And finally, do not forget that all property is subject to the volatility of the markets. Much Irish residential and commercial property is better value now than at any time in the past decade, with really decent rental yields. But there are many ways to make money…and to lose it.  REITS deserve to be treated with equal measures of care and scepticism. 

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