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Tuesday, October 16, 2007

Investing in an residential REIT

Mr Tan

I refer to your posting about a new concept in town planning. Can you explain the difference between investing in a residential REIT and an individual property? Most people like to invest directly in a specific property.

MY REPLY:

If you own a property and you wish to sell it, you have to incur the legal and agent's fees. This can take up to 4 percent of the total selling price. The selling price depends on the condition of your property, its facing, floor level and other factors. You also have to deal with the agent and the buyer.

If you invest in a REIT that owns a pool of properties, you enjoy the pooling of all the investments. The properties are professionally managed. For example, you may own 1% of a pool of 100 apartments. This is better than owning 1 specific property. You can even rent an apartment from the REIT at its market rental.

The cost of selling an investment in a REIT is less than 0.5%, compared to 4% for selling a property. I hope that the concept of a residential REIT will be more popular in the future.

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