What is a REIT?

Property has always been an attractive investment — tangible, income-producing, and a decent hedge against inflation. The problem was access: buying a building takes a fortune and a lot of hassle. REITs solved that, making real estate investable for almost anyone.

Why invest in property at all?

Real estate offers three sources of return rolled into one: rental income, capital appreciation as values rise, and a degree of inflation protection, since rents and property values often climb with prices. It also marches to a different beat than the stock market — driven more by local supply and demand, interest rates, and demographics than by global earnings cycles. That different rhythm makes it a useful diversifier.

Direct vs indirect investment

You can own property two ways. Directly — buying a building — gives you control and the ability to use a mortgage, but it’s illiquid, capital-intensive, and someone has to manage it. Indirectly, through a REIT, you own a slice of a diversified, professionally run property portfolio via a security that trades like a stock, with far lower minimums and the ability to sell in seconds.

What actually is a REIT?

A real estate investment trust is a company that owns, and usually operates, income-producing property. The defining feature: by law in most countries, a REIT must distribute at least 90% of its taxable income to shareholders as dividends. That legal requirement is why REITs are prized as income investments — they’re built to pay out. Different REITs specialise in different sectors: offices, retail, homes, warehouses, data centres, healthcare, and more.

Reading a REIT

Standard earnings figures can mislead with REITs, because depreciation — a huge non-cash accounting charge — drags down reported profit without touching the actual cash coming in. So investors use Funds From Operations (FFO), which adds that depreciation back, and compare price to FFO the way they’d use the P/E ratio for a normal company.

The risks

REITs are especially sensitive to interest rates: when rates rise, property values tend to fall and borrowing gets more expensive, so REIT prices often drop. They’re also exposed to the economic cycle (think empty offices in a recession) and to liquidity risk — direct property can take months to sell, and even listed REIT shares can fall sharply in a panic, as they did in 2020 and 2022.