[Practical Finance] No More 'Smart One-Home'! Real Estate Also 'Buffet-Style' Picking

Easy 'Listed REITs' with a Stock Account
11 out of 12 Stocks Show Positive Gains
Attractive Expected Dividend Yield Up to 7.5%

More Stable 'Real Estate Funds' Than REITs
Invest Without Worrying About Trading Timing
Expect Currency Gains if Dollar Weakness Continues

[Asia Economy Reporter Donghyun Choi] The saying "Don't put all your eggs in one basket" is one of the most famous investment adages in the stock market. This maxim emphasizing diversification has not worked well in the real estate market due to the unique characteristics of the product. On the contrary, the mentality that "one smart property in Gangnam is enough" has been stronger. However, as real estate assets diversify and indirect real estate investment becomes more active due to prolonged ultra-low interest rates and the spread of untact culture, significant changes are expected in this trend. Real estate products that allow diversified investment according to regional characteristics and building types, rather than "all-in" investments, are emerging one after another.

REITs Growing Rapidly... Product Groups Diversify Including Office and Logistics

The representative product of indirect real estate investment is REITs (Real Estate Investment Trusts). REITs collect funds from investors and invest in real estate or real estate-related capital and equity, distributing the income generated to investors as dividends. They are divided into stock-type (corporate type) and trust-type depending on their establishment form. The corporate type issues stocks to gather investors, regularly pays dividends to them, and is listed on the securities market, allowing trading like stocks. The trust type issues beneficiary certificates to gather investors but cannot be listed or redeemed.

Companies managing REITs are required by law to invest at least 70% of total assets in real estate assets, secure 70% of net income from real estate rents, mortgage loan interest, and capital gains, and distribute at least 90% of distributable profits to investors, making profitability relatively good. According to the Ministry of Land, Infrastructure and Transport, as of the end of October, the number of approved REITs in Korea (excluding listed REITs) is 274, with assets totaling 57.6 trillion KRW. Assets have increased 3.2 times in five years from 18 trillion KRW in 2015.

The asset composition structure is also gradually diversifying. Currently, among domestic REITs, housing accounts for 34.4 trillion KRW, or 59.63% of the total. Office properties hold the next largest share at 23.46%, followed by retail (12.53%), mixed-use (2.43%), and logistics (1.31%). Especially due to the impact of COVID-19, as the logistics and delivery market expands, REITs investing in related real estate are increasing.

Listed REITs Stand Out for Capital Gains and Dividend Appeal

Among REITs, listed REITs (public REITs) are products that general investors can easily trade with just a stock account. Listed REITs have recently gained popularity due to their appeal of both capital gains from stock price increases and attractive dividends.

As of the end of last month, an analysis of the stock price increase rates over the past three months for 12 REITs listed on the domestic stock market showed that K-Top REITs rose by a remarkable 42.5%. This figure far exceeds the KOSPI increase rate of 11.4% during the same period. Following were A-REITs (22.5%), iREITs KOREA (12.7%), Shinhan Alpha REITs (12.2%), Modetour REITs (11.8%), Aegis Residence REITs (10.5%), and Aegis Value REITs (6.93%). Except for one stock, all listed REITs recorded positive gains during the same period.

Listed REITs also have high dividend appeal. Among the 12 domestic listed REITs, 10 pay dividends in the cold months of November and December. According to KTB Investment & Securities, the expected dividend yield for next year of JR Global REITs, which is based on overseas office assets, is 7.5%. Macquarie Infrastructure (6.9%), Koramco Energy REITs (6.5%), and iREITs KOREA (6.4%) are also expected to record high dividend yields in the 6% range. Compared to the 1% range for one-year fixed deposits at commercial banks, this is a considerably high level. Researcher Kyungja Lee of Samsung Securities said, "The average dividend yield of the KOSPI is about 2%, but domestic listed REITs have a much higher yield of 5.6%. Despite the COVID-19 situation, dividends have been paid as planned, alleviating concerns about dividend stability."

Stability: Real Estate Funds > REITs

Along with REITs, real estate funds are another representative product of indirect real estate investment. Real estate funds are operated by financial companies purchasing domestic and overseas real estate with investors' funds and sharing rental income and capital gains. Investment targets vary, including income-generating real estate, auctioned properties, loans to real estate development companies, and pre-sales. The real estate fund market size, which was about 16.5 trillion KRW at the end of 2011, grew approximately 6.5 times to 108 trillion KRW as of the end of June this year. Due to the large capital requirements and difficulty in mid-term redemption inherent in real estate assets, investments were mainly private, but recently, with government regulatory improvements, both public and private markets are growing overall.

While real estate funds and REITs are similar in investing in real estate, their investment methods and purposes differ somewhat. Public REITs aim for perpetual investment by changing investment targets, whereas public real estate funds aim to invest in specific real estate, distribute investment returns to investors, and then terminate. Also, real estate funds have higher investment stability than public REITs. Public REITs are traded frequently on the stock market, leading to high volatility in investment returns, but real estate funds are managed and invested by the operator after initial subscription and return the final investment returns to investors at maturity, allowing investment without concern about trading timing.

Real estate funds are divided into domestic and overseas depending on the investment region. Overseas real estate funds are invested in foreign currency, so they carry higher risk than domestic real estate funds due to exchange rate fluctuations. However, when the dollar remains weak as recently, expectations for exchange gains increase accordingly.

Since real estate funds generally require long-term investments of three years or more, attention should be paid to the investment period. Ji-yeon Kim, a researcher at KB Financial Group Management Research Institute, advised, "For real estate funds investing in physical assets, it should be noted that they are set up as collective investment schemes that cannot be redeemed under the Capital Markets Act. However, products investing in real estate-related securities allow mid-term redemption, so these conditions should be carefully considered."

This content was produced with the assistance of AI translation services.