ZIMBABWE is now in its third year since the first Real Estate Investment Trust was publicly listed, and during that period, a second listing dominated the media on the second anniversary of the first.
The current situation is that two more should be listed, hopefully before the end of the year. The Security Exchange Commission is on record as the respective regulator to have confirmed that additional REITs have been approved and will be listed in due course.
As much as that is the case, I have come to realise that there are misconceptions about REITs and their role in the real estate market.
In this article, I will address some of the most common misconceptions and clarify how REITs work, their benefits and their potential economic impact.
Misconception 1
The first one is that REITs are only for wealthy investors. Many believe that REITs are a luxury investment option only accessible to high-net-worth individuals or institutional investors. However, this is not the case. REITs offer a way for individuals to invest in real estate with a relatively small capital, making it more accessible to a broader range of investors.
Misconception 2
The second one is that REITs are the same as real estate mutual funds. While REITs and real estate mutual funds allow individuals to invest in real estate, they are not the same.
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REITs are companies that own or finance real estate properties, providing a direct link to the underlying properties. On the other hand, real estate mutual funds invest in a diversified portfolio of securities, such as stocks and bonds, related to real estate.
Misconception 3
Some investors may view REITs as risky due to their perceived volatility. However, REITs can provide a stable source of income and diversification benefits, reducing overall portfolio risk. Additionally, REITs are subject to regulatory requirements, ensuring exercised oversight, transparency and accountability.
Misconception 4
The fourth is that REITs only invest in commercial properties. While many REITs focus on commercial properties, such as office buildings and shopping centres, others invest in residential properties, healthcare facilities, infrastructure projects, and agricultural land.
This diversity of property type offers investors a range of options to suit their investment goals.
Misconception 5
The fifth is that REITs are not transparent. REITs are subject to strict reporting requirements, and investors are provided with regular updates on their financial performance, property valuations, and other key metrics. This transparency enables investors to make informed decisions and monitor their investments.
Misconception 6
The sixth is that REITs are a new and untested investment vehicle. While relatively new in Zimbabwe, the concept is now over 60 years old on the global stage; REITs have existed for decades, with the first one established in the United States in 1960. Since then, REITs have evolved and expanded globally, with many countries adopting similar regulatory frameworks.
Misconception 7
The seventh is that REITs are only for short-term gains. While some investors may view REITs as a short-term investment opportunity, they can also provide long-term benefits, such as steady income streams, capital appreciation, and diversification.
Misconception 8
The eighth is that REITs are not environmentally or socially responsible. Many REITs prioritise environmental, social, and governance (ESG) considerations, recognising the importance of sustainability in real estate investing. By investing in REITs that emphasise ESG factors, investors can contribute to positive social and environmental outcomes.
Misconception 9
The ninth one is that REITs are too complex. While REITs can be complex investment vehicles, they are not inaccessible to individual investors. By understanding the basics of REITs and their benefits, investors can confidently make informed decisions and navigate the REIT market.
Misconception 10
The 10th one is that REITs are not regulated. REITs are subject to regulatory oversight, ensuring that they operate transparently and in the best interests of investors. Regulatory bodies, such as securities commissions, oversee REITs to maintain market integrity and protect investors.
Conclusion
By addressing these common misconceptions, I hope to better understand REITs and their role in the real estate market.
REITs offer a unique investment opportunity for individuals to participate in the real estate sector, providing access to a diverse range of properties, income streams, and growth potential.
As the REIT market continues to evolve, staying informed and adapting to changing market conditions is essential.
- Juru is the chairperson of the REIT Association of Zimbabwe.
