If you’ve clicked through to this article, you’re likely seeking ways to invest in international real estate safely with a fair promise of return on your investment. 

Real estate investment trusts are a relatively reliable means of doing this.

According to Ernst & Young’s 2017 Global Real Estate Markets report, the number of countries offering REITs as an investment vehicle had, at that point, almost doubled over the preceding 10 years.¹ 

The conclusion drawn is that REITs are increasingly seen as an investor-friendly, tax-efficient vehicle for real estate investment. 

What’s not to love?

Stay with us as we demystify REITs and explain how you could use them to realize your global expansion goals…

*Disclaimer: All amounts quoted in this article were correct and accurate at the time of publication and may have shifted since.

Understanding the Basics of Real Estate Investment Trusts 

As an investment vehicle, real estate investment trusts (or REITs) offer both financial stability and the potential for impressive returns in the ever-evolving real estate market.

Let’s familiarize ourselves with this intriguing route to acquiring international real estate.

Definition & Significance of Real Estate Investment Trusts

A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate assets. 

Essentially, REITs pool funds from multiple investors to invest in a diverse portfolio of properties, such as commercial buildings, shopping centers, apartments, hotels, and more.

The significance of REITs hinges on the following aspects:

• Diversification and passive investment: REITs offer an accessible and efficient way for investors to diversify their portfolios with exposure to the real estate market without the need to directly own and manage physical properties. This passive investment approach can reduce risk and increase potential returns.
• Income generation: REITs typically generate a significant portion of their returns through rental income from the properties they own and operate. For investors seeking regular income streams, REITs can be an attractive option, often offering higher dividend yields compared to other traditional investment vehicles.
• Real estate exposure: Real estate has long been considered a solid asset class, and investing in REITs allows individuals to participate in this market's potential appreciation and growth, which can act as a hedge against inflation and economic fluctuations.
• Liquidity: Compared to owning physical real estate, REITs offer a higher degree of liquidity. Investors can easily buy and sell REIT shares on stock exchanges, providing flexibility to adjust their investments based on market conditions or changing financial goals.
• Expert management: REITs are managed by experienced professionals who have in-depth knowledge of the real estate market, enabling investors to benefit from their expertise without taking on the responsibilities of direct property ownership.
• Residency and citizenship opportunities: In the context of international real estate investment, understanding REITs can help investors explore these options as a means of acquiring a second residency or citizenship while building wealth through real estate.

Overview of Global Real Estate Investment Trusts

Global REITs are structured as publicly traded companies and are listed on stock exchanges, allowing investors to buy and sell shares like stocks. 

REITs must meet specific regulatory requirements, including distributing a significant portion of their taxable income as dividends to shareholders.

The result…

REITs enjoy certain tax benefits, making them attractive investment vehicles for both individual and institutional investors seeking exposure to the real estate market without directly owning and managing properties themselves.

For your convenience, here’s our team’s overview of global REITs:

• International diversification: Global REITs provide investors with the opportunity to diversify their real estate holdings across various countries and geographic regions. This diversification can help reduce risk by spreading investments across different economic and regulatory environments.
• Property types: Global REITs can invest in various types of properties, including commercial office spaces, retail centers, industrial facilities, residential properties, hotels, and more. 
• Currency exposure: Investing in global REITs exposes investors to different currencies. Currency fluctuations can impact returns, adding an additional layer of diversification to an investment portfolio.
• International economic trends: As we’ve seen from Ernst & Young’s report quoted above, global REITs can be a valuable indicator of economic trends in different countries and regions. 
• Risk and return: Like all investments, global REITs come with their own set of risks. Market conditions, geopolitical events, and changes in local real estate regulations can affect the performance of international REITs. However, they also offer the potential for attractive returns as they tap into growing and emerging markets.
• Access to restricted markets: Some countries have restrictions or barriers for foreign investors to directly invest in local real estate. Global REITs can sometimes provide a way for international investors to indirectly access these markets through the REIT's holdings.

Bear in mind

Real estate investment trusts will differ slightly from each other depending on the regime in which they’re domiciled.

Our advice is to familiarize yourself with the tax landscape (which generally dictates REIT structure) and the REIT legislation in your country of interest before making major decisions in this regard.

Types of Real Estate Investment Trusts

Generally, there are 2 different types of REITs: equity and mortgage.² 

Equity REITs own and manage income-generating real estate, whereas mortgage REITs tend to loan money to real estate owners or operators. 

Regardless, real estate investment trusts can take different forms, depending on their focus. 

We discuss these types briefly below.

Foreign Property Trusts

Foreign Property Trusts are REITs that exclusively invest in real estate assets located in a specific foreign country or region. 

These trusts offer investors targeted exposure to a particular international real estate market, capitalizing on its growth potential and economic conditions.

Cross-Border Real Estate Funds

Cross-Border Real Estate Funds are REITs that invest in a diversified portfolio of properties across multiple countries or regions. 

These funds enable investors to spread their risk across various international markets, benefiting from different property types and economic landscapes.

Foreign Express Trusts

Foreign Express Trusts are REITs designed to provide efficient and rapid access to foreign real estate markets. 

These trusts offer streamlined processes for international investments, allowing investors to capitalize on time-sensitive opportunities without complex regulatory hurdles.

Offshore REITs

Offshore REITs are entities established in low-tax or tax-neutral jurisdictions. 

Reasons to invest in an offshore REIT further include tax optimization and tax efficiency for both the REIT and its investors, potentially enhancing overall returns.

Potential Disadvantages of REITs

As is the case with any enticing investment opportunity, it’s important that you consider the potential disadvantages of sinking funds into it.

For your consideration, we’ve compiled the 3 main disadvantages we feel may impact your REIT investment.

Take a look:

Market Volatility

REITs, like other equity investments, can be subject to market fluctuations and volatility; this is one of the reasons their success serves as a good indication of market health.

Changes in real estate market conditions, economic downturns, or shifts in investor sentiment can impact the share prices of REITs, potentially leading to fluctuations in the value of the investment.

Management & Fees

Some REITs may have higher expense ratios and management fees, which can eat into overall returns for investors. 

Additionally, the quality of management can vary among different REITs, and poor decision-making or inefficient operations could affect the performance of the trust.

Interest Rate Sensitivity

REITs can be sensitive to changes in interest rates. 

When interest rates rise, the cost of borrowing for REITs may increase, impacting their profitability and valuation. 

As a result, rising interest rates may lead to a decline in REIT share prices.

How to Determine Whether a REIT is Legitimate

Real Estate Investment Trusts (REITs) are regulated entities in most jurisdictions where they operate. 

The regulations governing REITs aim to provide investor protection, ensure transparency, and maintain the integrity of the real estate investment market. 

These regulations vary from country to country, and each jurisdiction may have its own specific rules and requirements for REITs.

We’ve summarized some common REIT regulatory features to look out for:

• Qualification requirements: To qualify as a REIT, certain criteria must be met, such as the percentage of income derived from real estate activities and the distribution of a significant portion of taxable income as dividends to shareholders.
• Tax status: REITs often receive favorable tax treatment, provided they comply with specific tax regulations and distribute most of their income to shareholders.
• Ownership structure: REITs are typically required to have a specific ownership structure where they are held by multiple investors as publicly traded entities or private trusts.
• Investment restrictions: Some jurisdictions impose restrictions on the types of real estate assets REITs can invest in and may require diversification within the portfolio.
• Reporting and disclosure: REITs are subject to reporting requirements, financial disclosures, and transparency regulations to provide shareholders with relevant information about their operations and financial performance.
• Governance: REITs are often subject to corporate governance standards to ensure effective oversight and management of the trust's operations.
• Asset valuation: Valuation standards and practices may be regulated to ensure accurate and consistent valuation of the real estate assets held by REITs.

It's important that you’re aware of the regulatory requirements in the jurisdiction where you plan to invest. 

Compliance with regulations is essential for maintaining the REIT's status and enjoying the associated tax benefits and investor confidence.

Understanding Global Asset Management in REITs

Professional asset management is a vital component of global REITs, providing investors with the expertise needed to navigate the intricacies of international real estate investments and achieve optimal results in this dynamic and diverse market.

Here’s what you ought to know:

Importance of Professional Management

In the world of Real Estate Investment Trusts (REITs), professional asset management plays a pivotal role in the success and profitability of these investment vehicles. 

As global REITs operate across various countries and real estate markets, having experienced and regulated professionals oversee your portfolio is essential to navigating the complexities and challenges of international investments.

We advise that you hire a reputable asset manager before selecting the REIT that appeals to you.

Global Asset Allocation & Portfolio Management

Global REITs require a sophisticated approach to asset allocation and portfolio management. 

Skilled asset managers diligently analyze diverse real estate markets, identifying opportunities and risks in different regions. 

By strategically diversifying the REIT's holdings across multiple countries and property types, they aim to optimize returns while mitigating risks associated with fluctuations in specific markets or sectors.

Moreover

Successful global asset management in REITs involves closely monitoring economic trends, regulatory changes, and geopolitical factors that can impact international real estate markets. 

By staying informed and adaptive, asset managers can make informed decisions to position the REIT for long-term growth and capitalize on emerging opportunities worldwide.

Future of Real Estate International Trusts

So, in an industry that appears to be on the up and up, what’s the future looking like for REITs?

Let’s take a look at the trends and prospects:

Trends & Developments in Global Real Estate

The future of Real Estate International Trusts (REITs) is poised to be influenced by various trends and developments in the global real estate landscape. 

Trends worth considering are listed below:

• The growing interest in sustainable and environmentally friendly properties. 
• Technological advancements such as blockchain and digital platforms are transforming the way real estate investments are conducted. These innovations can streamline transaction processes, enhance transparency, and increase accessibility for global investors interested in REITs.
• Demographic shifts, such as urbanization and changing lifestyle preferences, are influencing real estate demands in different regions. REITs that adapt to these evolving needs and invest in properties that cater to emerging market trends may gain a competitive edge in the global real estate sector.

Prospects of REITs

Looking ahead, the prospects for REITs remain promising.

As an investment vehicle, REITs offer the potential for steady income streams through rental income and have historically delivered attractive dividend yields. 

Reliably, the best predictor of future trends tends to be past performance. 

The globalization of real estate markets is likely to increase the demand for cross-border investments, opening up new opportunities for global REITs to capitalize on diverse real estate markets worldwide.

Additionally

With a growing interest in environmental, social, and governance (ESG) practices, REITs that prioritize sustainability and corporate responsibility are expected to gain favor among socially conscious investors, enhancing their market appeal and long-term performance.

The continued development of real estate technology, including property analytics and smart building solutions, may lead to enhanced operational efficiency and asset performance for REITs, bolstering their competitiveness in the market.

However

Like any investment, REITs also face challenges, including market volatility, interest rate fluctuations, and regulatory changes. 

Effective risk management and prudent asset allocation will be essential for REITs to navigate these challenges successfully.

Common Questions

In Conclusion

Real Estate Investment Trusts (REITs) are a compelling investment option offering financial stability, diversification, and income generation in the dynamic real estate market. 

They can be a wonderful way of investing in international real estate and, possibly, of meeting the requirements of citizenship by investment or residency by investment programs. 

Understanding the basics of REITs empowers investors to make informed decisions, contributing to their financial growth and potential opportunities for residency or citizenship through international real estate investment.

We’ve loved sharing our expert insights on REITs with you - if you’d like to delve deeper, don’t hesitate to reach out to our team!