It is a financial product where a large sum of funds is pooled from investors for the purpose of purchasing real estate. The income from the properties, in the form of rent, gains from their resale is distributed to those same investors in the form of dividends. There are two types of REITs, a corporation-type and a contract-type. The former involves an issuer (investment corporation) pooling monies from investors via securities firms for the purchase of real estate and then consigning its operation and maintenance to a management company. Earnings (rent or sale proceeds, etc.,) are distributed to the investors. Investors are issued an Investment Certificate (equivalent to a stock certificate). With contract-type investment trusts, the real estate is retained by a trust company and the investors are issued a Beneficiary Certificate.
Investors are issued either an investment certificate or a beneficiary certificate on which a four-digit securities code is assigned, just like stocks, and these can be traded on the Exchange either market make method or auction method (the trading method is determined by an application submitted by the issuer of the REIT). They can be traded like stocks with limit or market orders, on margins or during off-hours.
| (1) | Listed on securities exchanges |
| (2) | Effective diversification of risk through investments in multiple properties |
| (3) | Properties managed by specialists |
| (4) | Stable dividends, relatively high interests |
| (5) | Real estate investments realized at an affordable price |
| 4.Cautions When Investing in REIT |
| (1) | Because they are traded on the market, they bear the risk of price fluctuation that may bring their value lower than the purchase price |
| (2) | Variegated economic conditions, the movements of the real estate rental and lease market and interest rates may have an unfavorable impact on REITs causing their value to fall or their dividends to decrease |
| (3) | Losses may occur as a result of a surge in cost for individual properties due to earthquakes or fires, changes in the legal or taxation systems or the insolvency of the investment corporation |
| (4) | It may be the subject to delisting as per the delisting criteria established by the Exchange |
| (5) | Fees are charged for trades and taxes are levied on gains derived from property transfers and dividends |
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