Global REITS – or Real Estate Investment Trusts – afford relatively easy access to international real estate markets, enabling retail investors to diversify their portfolios and participate in potentially higher real estate gains overseas.
Global REITs have gained 16.26 percent year to date, after losing 12.86 percent in 2011 and gaining 4.57 percent in 2010, according to data supplied by the National Association of Real Estate Investment Trusts or NAREIT. In comparison, Americas REITs gained 11.89 percent year to date, after declining 4.92 percent in 2011 and gaining 7.40 percent in 2010.
All international investments allow individuals to diversify away from U.S. markets and take advantage of growth opportunities in other countries, but global REITS enable investors to diversify even further by providing an alternative to the asset classes of international equities and bonds. The products – specialized pooled investments with potentially high dividend payouts – can give investors access to burgeoning real estate markets, particularly in emerging nations.
Growth in the lodging industry, for example, has been “particularly pronounced” in developing countries, according to NAREIT. New hotel construction is growing at the rate of 1 percent per year in the United States, but analysts predict a 13 percent increase in worldwide hotel transaction volume in 2012 compared to 2010. In particular, the FIFA Soccer World Cup in 2014 and the Summer Olympics in 2012 are expected to dive significant growth in the Brazilian hotel market.
International real estate development appeals most to high net worth investors, according to a survey of affluent investors conducted by Millionaire Corner in April. More than 9 percent of investors with assets of $5 million or more invest in overseas properties. About 4 percent of less affluent millionaires, those with $1 million to $5 million in investable assets, own overseas property, as do 8 percent of non-millionaire investors with $500,000 to $1 million.
REITs are the preferred alternative investment of high net worth investors, according to our fourth quarter wealth study on financial product ownership. A REIT can offer “strong, long-term total returns,” according to NAREIT, which notes that the products also have strong diversification potential.
Reliable income – related to the unique structure of the trusts - is also a strong driver of REIT investment, said the association. REITs are required by law to pay out at least 90 percent of taxable income to shareholders in the form of dividends. “Consequently,” said the association, “REITs tend to generate a stable and consistent stream for investors.”
REITs also provide a hedge against inflation because most commercial sectors can implement rent and price increases to keep pace with rising costs. In addition, investors tend to move assets into real estate during inflationary cycles. The increased demand for REIT shares results in a “nearly real-time increase” in shareholder values.
Global REITs invest in such products as regional malls, office buildings, diversified real estate companies and real estate operating companies overseas.