Established in the early 1960s by the US Congress, Real Estate Investment Trusts (REITs)  were created to simplify the ownership of property for the ordinary investor/worker to have the same benefits as the large financial institution or the high-network individual in buying shares in real estate portfolios.

REITs are companies that invest in income-producing assets. They are structured and organised as partnerships, trusts, corporations or associations that invest directly in real or personal properties by buying mortgages or purchasing properties simply to earn dividends to their pool of numerous investors. Usually REIT companies trade on the stock exchange and consider real estate sectors in high demand e.g. apartments, condos, warehouses, retail centres, healthcare centres and self-storage facilities to mention a few.

Without the need for stakeholders to manage, buy or finance anything themselves, the pool of numerous investors makes profits from REIT companies by earning dividends from the investments which are likely to be higher than other investment returns.

There are two types of REITs: equity REITs and mortgage REITs (m-REITs). Equity REITs are companies that own and operate real estate as their main module whereas m-REIT companies loan out money or execute the mortgages and make their profits off the interest rates of the loans granted.

In 1995, Ghana’s version of REITs was launched by the Housing Finance Company (HFC Bank), now Republic Bank. However, due to challenges in the land administration and other flaws, the growth of the scheme faced challenges to maintain its grounds.

Just like with many investment options, REITs as an investment option, equally have their merits and demerits. On the bright side they offer strong, stable annual dividends to their shareholders and are easy to buy and sell. They also offer attractive risk-adjusted returns and stable cash flow. On the disadvantages of REITs, dividends are taxed as regular income and  investment is subject to market risk.

In Ghana, quite a number of real estate companies shy away from regulators: the Bank of Ghana, the Securities and Exchange Commission (SEC) and other regulators, to register their companies as REIT operators.

In a nutshell, as with many investments, there is always a risk with loss and REITs are no exception to that. However, knowing what works for you as an individual is key to sustaining a fruitful investment. Hopefully, the above has provided you with sufficient information to identify what works best for you. Let us know about your experience in the comments.