Why is REIT the real choice for investors fleeing low-interest rates?

Real estate investment trusts (REITs) have entered the Thai stock market since 2018. They have become an important tool for investors seeking steady cash flow without requiring huge capital investments. The issue is that returns are not always favorable. What causes this? Let’s understand REITs seriously.

What kind of assets are REITs?

The full name is Real Estate Investment Trust – simply called REIT, which is a collective of income-generating (various real estate properties) managed by a fund manager who raises capital from investors and manages it. Returns come from balanced income streams such as rent, utility expenses, etc. The term REIT refers to a system designed so that small investors can participate in large projects without needing large funds, similar to buying real estate themselves.

Why is REIT worth investing in?

For stable income assets – hotels, warehouses, shopping malls, offices, health centers, or even fiber optic networks can be part of a REIT, provided they generate continuous income.

For tenants – they provide an alternative way to raise funds for developing new projects without borrowing all the money.

For investors – they receive dividends that are usually paid regularly, with high liquidity, easy trading on the Exchange market, and the core value of diversification (Diversification) of the portfolio.

REIT vs Property Fund – what’s the difference?

If viewed broadly, REITs are an evolution of property funds, a newer version with more flexibility and regulated by international agencies. The key differences are threefold:

Structure – Property Funds are mutual funds, while REITs are trusts regulated by the SEC and have a certificate from the SET.

Operational scope – Property Funds can only invest in the SEC’s Positive List and not abroad. REITs are more flexible, allowing foreign investments up to 10% of total assets and development of real estate.

Unit management – Property Funds do not need to focus on free float distribution, whereas REITs must adhere to strict securities regulations, such as a minimum of 15% retail ownership and annual unit holder meetings.

Currently, Thai property funds are no longer issued new units and have all transitioned into REITs.

How are REITs classified?

By property rights:

• Freehold – full ownership rights, with value attached to the land. If further development occurs, the REIT’s value increases.
• Leasehold – rights to lease for a certain period. When the lease expires, the REIT becomes worthless, and the unit value gradually decreases over time.

By business type:

• Retail REIT (shopping malls, outlets)
• Residential REIT (hotels, condos, dormitories)
• Healthcare REIT (hospitals, senior living centers)
• Office REIT (office buildings)
• Infrastructure REIT (fiber networks, energy pipelines)

What factors drive REIT value?

Part 1 – Property value

• Rights type (Freehold is better than Leasehold)
• Local economic conditions
• Infrastructure
• Market demand

Part 2 – Income streams

• Occupancy rate
• Ability to pay rent
• Business growth in the area
• Economic policies and COVID-like events

Pros and cons of investing in REIT

Advantages: ✓ High liquidity, can be traded easily on the SET market ✓ Steady returns, better than fixed deposit interest ✓ Risk diversification, no need for large lump sums ✓ Transparency and regulation

Disadvantages: ✗ 10% tax on dividends or combined with deductions ✗ Interest rate risk: when rates rise, REIT prices tend to fall ✗ Long-term risk in Leasehold investments

Examples of interesting Thai REITs

CPNREIT (CPN Retail Growth) – Leasehold REIT from various Central shopping centers, priced at 9.85 THB, with an 8.35% annual dividend yield.

IMPACT (Impact) – Freehold REIT in Impact Convention Center, priced at 12.80 THB, with a 4.69% annual dividend yield.

WHART (WHA Premium Growth) – Both Freehold and Leasehold REIT from warehouses, priced at 9.50 THB, with a 7.63% annual dividend yield.

JASIF (Jasmine) – Infrastructure fund from fiber optics, priced at 6.70 THB, with a 13.73% annual dividend yield.

What should investors consider when investing in REIT?

REITs are tools not suitable for everyone. If you seek steady cash flow and can accept interest rate fluctuations, REITs might be a good choice. However, you should select the (Freehold is better than Leasehold) type and appropriately diversify within your portfolio. Do not invest out of greed; think of REITs as a balance between consistent income and the various risks involved.