What is a REIT? Guide to investing in REITs

The property market is becoming a popular method of investment for both long-term and short-term traders. Real estate stocks are seen by some as relatively stable investments, although share prices can fall during periods of economic instability or market crashes. 

Buying, selling and trading real estate shares in Australia offers a simple way to access the property market without the hassle of financing and managing physical properties. Property development can be lengthy and challenging, making REITs and shares a simpler option with the potential bonus of dividend payouts. In fact, real estate investment trusts are required to pay out at least 90% of income in the form of dividends to shareholders, with some paying the full 100%. This article will explain how you can trade on REITs, as well as property assets and ETFs. 

What is a REIT? 

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate across a range of property sectors. In order to qualify as a REIT, the company must invest at least 75% of its assets in different property types, and this percentage must come in the form of rental income or mortgage interest. While most REITs aim to focus on a specific sector, such as residential buildings or data centres, many still maintain a diverse range of properties within their portfolio. 

Real estate properties fall into three categories: residential, commercial and industrial. These can include hotels and resorts, rental properties, shopping centres, student housing and many other property types. REIT sectors are more specific and described in more detail in this article. Leading REITs are represented in major indices worldwide, including the ASX 200 and the S&P 500. 

REIT ETFs 

Just when you thought REITs had diversification covered with their property mix, REIT ETFs take it a step further by holding a whole portfolio of REITs! Whereas REITs represent one single company or share to invest in, REIT ETFs can provide even broader exposure to the property market. This means that traders can invest into a number of stocks at once with the hope that a well-performing company can offset risk, if another company is to start performing poorly. 

Our platform offers a variety of REIT exchange-traded funds from some of the world’s leading ETF providers, including iShares, Vanguard, and Invesco. Leveraged ETFs are complex financial instruments that carry significant risks, and certain leveraged ETFs are only considered appropriate for experienced traders. You can trade exchange-traded funds with a live account only, where you can also access our trading forum and other exclusive platform tools. 

Top REITs to watch

REITS: 

• Goodman Group (GMG) 

• Scentre Group (SCG) 

• Mirvac Group (MGR) 

• Stockland (SGP) 

• GPT Group (GPT) 

• Dexus (DXS) 

• Charter Hall Group (CHC)

REIT ETFs: 

• Schwab U.S. REIT ETF (SCHH)

• SPDR Dow Jones REIT ETF (RWR) 

• First Trust S&P REIT Index Fund (FRI) 

• Vanguard Australian Property Securities Index ETF (VAP) 

• SPDR S&P/ASX 200 Listed Property Fund (SLF) 

How to trade REITs 

It is possible to trade REITs and REIT ETFs with a CFD trading account. Traders of our platform are required to trade on margin; therefore, we encourage you to devise an efficient risk management plan beforehand. As profits can magnify with leverage, losses can magnify just as easily. 

Open a live account now to start trading property assets and REIT ETFs, and familiarise yourself with our award-winning CFD trading platform. You can filter by sub-type on our Product Library, as demonstrated below, by using the 'Property' filter. This gives you a list of over 300 REITs, property assets and exchange-traded funds from a variety of countries and asset classes. 

Are REITs safer than stocks? 

One concern for investors when trading stocks is the issue of interest rates. When interest rates rise at a point of economic growth, this often causes share prices to fall and earnings to drop also for the business. This is not a positive move for traders who have a large stock portfolio, as they may need to short sell the stocks in order to avoid future loss. However, REITs can often react in the opposite way to this. REIT prices tend to rise along with interest rates, as economic growth helps to boost the value and subsequent earnings of real estate investment trusts. Therefore, REITs are often seen as safer in terms of inflation and interest rates. 

However, there are also risks involved when trading REITs that you need to be aware of. Although the price of REITs generally rise with increasing interest rates, there is also the potential that they will be affected by times of uncertainty within the property market. For example, a national recession can cause the property sector to weaken in general. This means that the value of REITs and property assets will decrease in a similar way. 

It is perhaps safer to open positions for both real estate stocks and real estate investment trusts, with the aim of building a more diversified portfolio. In turn, this will help to offset the risk of one investment that is performing poorly with another. 

Conclusion 

For traders, REITs present an exciting opportunity to diversify and gain exposure to the property market without the complexities of owning physical assets. Trading REITs as CFDs allows you to take advantage of price movements in either direction, with the flexibility to adapt to changing market conditions. As always, it's crucial to apply effective risk management strategies and stay informed about market trends, ensuring your trading decisions align with your overall goals.