Sam Lee
Real estate is widely considered one of the best investment vehicles for creating personal financial wealth. But there is also the perception that it is one of the most inaccessible investments due to the high price of properties, especially in Macau and Hong Kong.
Is there are a way for investors to get involved in the real estate market without actually buying and owning properties? There are, and we’ll introduce just a couple of those options today.
The first option is to invest in a Real Estate Investment Trust, or REIT. A REIT is a company that owns, manages or finances income-producing real estate. REITs often trade on major exchanges like other securities such as stocks to provide an avenue for investors to have a liquid stake in real estate. REITs are required to pay out at least 90% of their income as dividends, and have at least 100 shareholders where no five shareholders can own more than 50% of the shares.
There are two major types of REITs. Equity REITS generate cash flow by purchasing properties and leasing them out to tenants like traditional portfolio investors. They also capitalize on appreciations in property prices over time.
Mortgage REITs make money by borrowing money at low short-term interest rates and buying mortgages that pay higher long-term interest rates and keeping the spread. Mortgage REITs can be volatile due to fluctuations in the short-term interest rate while Equity REITS are traditionally more stable.
Another way is to get involved as a passive investor in a real estate syndicate. A syndicate is basically a group of investors pooling their funds to invest in a development project under the management of the Sponsor. Syndicates and REITs share a similar fundamental operating model but syndicates are usually much smaller in size, less formal and typically focus on a specific development project. Syndications are not common in Macau or Hong Kong, but can be commonly found in overseas investment markets such as the US.
The last and perhaps the most passive form of real estate investing is to purchase Secured Loan Notes (SLNs). A SLN is a type of loan that is backed by the borrower’s assets, which in this case would be real estate. If the borrower defaults on the SLN, the pledged asset that is securing the loan can be sold to repay the note. SLNs typically pay a fixed interested rate on the principal for the duration of the loan until the loan is settled in full. If you are an investor looking for secured, predictable returns on your money SLNs might be the right option for you.
Sam Lee is a marketing manager and property consultant at JML Property. JML was established in 1994 and offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.
www.JMLProperty.com
info@JMLProperty.com
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