[Practical Finance] Shall We Have a Cup of Coffee? Or Buy a Building Unit Instead!

Small Investments Possible... Real Estate REITs Gaining Attention for Stable Dividend Income

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[Asia Economy Reporter Kim Min-young] As the low interest rate environment continues for a long time, REITs investment that provides stable and high dividends is emerging. Recently, with the rapid rise in housing prices and strengthened acquisition taxes making gap investment or real estate investment difficult, individuals can also invest in profitable real estate through public REITs with small amounts and receive monthly rent (dividends) like building owners. REITs refer to a kind of 'real estate group purchase' product that pools investment funds to invest in buildings, hotels, commercial facilities, etc.

◆ Becoming a building owner receiving monthly rent with small investments = REITs investment has a profit structure similar to building owners who receive monthly rent regularly. The difference is that building owners receive rent, while REIT investors receive rental income or development profits as dividends. As of the end of last year, the average dividend yield of operating REITs was about 8.33%. Among REITs, the dividend yield of listed REITs freely traded on the stock market was 7.13% (based on 13 REITs analyzed in financial reports). A Ministry of Land, Infrastructure and Transport official said, "REITs have excellent stability and provide considerably higher dividends compared to deposits and bonds, so they can be an excellent investment opportunity for the general public in a low interest rate environment."

While becoming a building owner requires at least several hundred million won in capital, REITs investment is possible with small amounts. Most listed REITs have a stock price around 3,000 to 6,000 won per share. The saying to invest in buildings instead of coffee is not without reason. Mr. B, living in Sangye-dong, Seoul, said, "After securing a residence, I read real estate trends through REITs investment rather than direct real estate investment," adding, "I can feel like a building owner by investing just 100,000 won."

◆ Trading at desired times... including tax benefits = Real estate rental requires payment of various taxes such as property tax and income tax, and there is a possibility of conflicts with tenants. It also takes a long time to liquidate. However, REITs investment is only subject to dividend income tax, and professionals manage the investment. Trading is possible at the desired time.

Tax benefits are also attractive. Dividend income tax on all stocks, including public REITs, was originally 15.4% (including resident tax). However, last year, the government decided to provide a low-rate separate taxation benefit of 9.9% (including resident tax) on dividends received for three years up to an investment limit of 50 million won for public REITs to disperse real estate investment demand.

◆ There are also cautions such as vacancy occurrence and interest rate hikes = There are a total of 15 REITs listed on the domestic stock market. REITs investing in urban offices such as NH Prime REITs and Shinhan Alpha REITs are the most common, but there are various products such as Koramco Energy REIT (gas stations) and Aegis Residence REIT (rental housing). Due to the spread of COVID-19, REIT products specializing in logistics centers, which increased non-face-to-face delivery volumes, have also appeared. For customers new to REITs investment, they can first select a securities company and open a comprehensive investment account. A representative from Daishin Securities explained, "You can invest in desired REIT products through a comprehensive investment account," adding, "Customers can apply for separate taxation themselves or through the operations team."

However, risks of REITs investment include yield decline due to vacancy occurrence and interest rate hikes. On the other hand, with the transition to a with-COVID-19 quarantine system, if tenants' situations improve, there is less concern about delayed rent or vacancies, which can increase the attractiveness of dividend stocks.

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