If you’ve been following the property market lately – and let’s face it, what Aussie hasn’t – you might’ve come across something called an REIT (real estate investment trust).
REITs are a great way to get exposure to the Aussie property market – without having to fork out for a deposit. And if you play your cards right, they can be a pretty decent addition to your investment portfolio. But like anything in finance, there’s some fine print you should look at before diving in.
What is an REIT?
It’s basically a company or trust that owns, operates or finances income-producing real estate … think office towers, shopping centres, logistics warehouses, apartment complexes. They collect rent from tenants and pass that income on to investors in the form of dividends. And the increasing (or decreasing) value of the properties is reflected in the asset backing of the trust which underpins the share price value.
You can buy units in REITs just like shares. Most are listed on the ASX and trade like any other stock, which means you can invest with as little as a few hundred bucks – not the six or seven figures you’d need to buy a block of shops outright.
REITs have been around in Australia since the 1970s, but they’ve become more popular in recent years thanks to online brokers and ETFs. Today, the listed-property sector in this country is worth tens of billions of dollars – so this is no fringe investment.
What makes REITs appealing?
For starters, REITs can be a handy source of regular income. Because they’re required by law to pay out most of their earnings (usually around 90 per cent), they can deliver higher dividend yields than many other stocks. That’s music to the ears of retirees or income-focused investors.
They’re also a way to diversify your investment portfolio. If you’re already invested in Aussie shares and residential property, REITs can give you exposure to a different slice of the property market – namely, commercial and industrial real estate.
And there’s convenience. You don’t have to worry about tenants calling you at 2am because the hot water’s gone. There are no repairs, no rates, no strata meetings. The trust manages all that – you just collect the dividends and monitor your investment like any other share.
Are REITs a ‘safe’ bet?
Let me be clear – no investment is 100 per cent safe. That includes REITs. While they are generally more stable than high-growth tech shares, they can still rise or fall depending on what’s happening with the property market and interest rates.
When rates go up, the cost of debt increases for REITs, which can eat into their profits. That’s something we’ve seen over the past couple of years … some listed property trusts have taken a hit as investors worry about rising rates and falling commercial property values.
And then there’s the sector risk. A retail-focused REIT that owns a bunch of suburban shopping centres is exposed to very different risks than one focused on logistics warehouses or medical centres. If consumer spending slumps or e-commerce eats into bricks-and-mortar retail, that shopping centre trust might struggle.
That’s why you need to spend a bit of time looking under the hood of any REIT before investing. What kind of properties does it own? How much debt is on the books? What’s the occupancy rate? Who are the tenants, and how long are their leases?
Don’t just chase the biggest dividend yield you can find because, in many cases, a high yield can be a red flag rather than a green light.
Are REITs good value in 2025?
Right now, a number of investments analysts reckon REITs are starting to look attractive again – especially as interest rates start to ease.
After a rough run through 2022 and 2023 when rising rates spooked the market, many REITs are now trading at a big discount to the value of the assets they hold. That means you could be buying property exposure for less than the value of the underlying bricks and mortar.
And with some parts of the commercial office property market starting to stabilise there’s scope for solid, long-term returns if you pick the right ones.
Plus, if the RBA keeps cutting rates, that’s a tailwind for REITs: lower borrowing costs, higher profits, potentially better dividends.
How to get started
If you’re keen to dip a toe in the REIT pool, you’ve got a few options.
You can invest in listed REITs through the ASX – just search the ticker codes and see what’s available. Or you can invest via an ETF that holds a basket of REITs. That gives you instant diversification and can be a good option if you’re new to property trusts.
And as always, do your homework and get advice from a stock broker or financial adviser. Because while REITs can be a powerful way to build wealth and diversify your portfolio, they’re not a silver bullet. They’re a tool and, like any tool, you need to use them wisely.
