Method Adopted
Real Estate Investment Trusts) were first established in 1960 by the United States Congress to give all investors, especially small one’s access to income-producing real estate. Since its establishment, Australia adopted REITS in 1971, Canada 1993, UK in 2007, Ghana 1994 and gradually REITS have gained traction globally and today, the market capitalization stands at $1.7 trillion. Global statistics show that REITs have been able to outperform various asset classes consistently and since the Covid-19 pandemic, the total returns globally have been in excess of 20 per cent. The growth has been attributed to the increased sensitization whereby it provides investors with an opportunity to become landlords through investing their money on property development. Whereas other sectors of the economy were greatly affected by Covid-19, this article seeks to provide an insight into how Covid-19 period facilitated growth of investment and returns from REITS programs globally.
I chose to analyze eight media articles randomly over the period of 2 years between 2019 to 2022 as these were periods during which Covid-19 was rampant hence there was a need to analyze the trends and determine what facilitated the growth and what does this growth signifies to the large development that has been witnessed in the society for REITS investments. In the wake of increased Covid-19 effects in the society, various investment opportunities were heavily affected and there were those whose operations were grounded. However, the real estate investment was not equally spared as there were incidences of turbulence which led to some REITs investment sectors to improve in value while others were negatively affected. Some of the articles to be analyzed below provide an insight into how the real estate market behaved in the wake of Covid-19 and post pandemic period. The media outlets analyzed include.
- https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/why-real-estate-investment-trusts-hold-growth-potential-3674162
- https://www.afr.com/property/commercial/new-year-brings-fresh-opportunity-for-property-bankers-20220106-p59m8v
- https://www.bdo.com.au/en-au/news/media-releases/a-reits-have-roared-back-to-life-findings-from-bdo-s-27th-annual-survey-of-australian-real-estate-i
- https://www.reit.com/news/blog/market-commentary/global-reit-and-listed-real-estate-performance-during-pandemic
- https://www.reit.com/news/blog/market-commentary/the-outlook-for-reits-during-the-covid-19-crisis
- https://realassets.ipe.com/news/viewpoint-why-listed-real-estate-will-benefit-from-vaccine-driven-recovery/10051943.article
- https://economictimes.indiatimes.com/markets/stocks/news/reits-are-making-a-powerful-comeback-in-post-lockdown-india/articleshow/87911473.cms
- https://www.wsj.com/articles/reits-romped-in-2021-as-property-values-soared-11640696407
The media reports.
The article was posted on 7th January 2022 in which the author advised investors that if they are seeking to invest then they should consider investing in REITS as the investment platform has been able to outperform various asset classes consistently. As at December 2021, REITs performance was up by 29 per cent, and since the Covid-19 pandemic, the total returns globally have been in excess of 20 per cent an indication of a potential investment opportunity that will be able to increase the value of investment that is done by an investor. The author noted that the increased investment in REITS that has been evident in the society is based on the fact that unlike other asset investments that are not secured, REITS are safe for investment as they are licensed and governed by the Capital Markets Authority (CMA) and the Retirement Benefits Authority (RBA).
The article noted that the reason for increased popularity and use of REITS for investment is because unlike other investments in Kenya that are heavily taxed, REITS are tax exempted and the returns in form of divided earned are the ones subjected to 5% withholding tax and 10% for locals and foreigners respectively (Business Daily, 2022).
Article 1: Business Daily Africa
Published on 6th January 2022, the insider report acknowledged that 2022 was a period during which more opportunities for property bankers have been able to be generated and enhanced hence resulting to an opportunity through which the sector can be able to attract more investment and grow the profit margins of various investors. This comes just after containment of the pandemic in various regions in the globe in which it was evident that while other investments were severely affected by the pandemic, the real estate sector remained relatively stable with increased opportunities for investment being vivid as a result of increased diversification of real estate investments in which attention has been provided as demand for housing continue to rise hence providing investors in the sector to be able to diversify and come up with an appropriate investment plan that can enable them to grow their asset base significantly (Australian Financial Review. 2022).
While the Omicron variant continued to create havoc in the society, significant strides in terms of investment were vivid in Australian market whereby expanding property fund manager Charter Hall signed off on a deal to buy 50 per cent of Paradice Investment Management. This is an indication that while investors in other sectors were fearing to embrace investment, this was an opportunity for investors to shine by putting their money where they felt that it can multiply and get more returns after the end of Covid-19 when panic investment would be experienced in the market.
Posted in 1st December 2021, the article noted that REITS investments have roared back to normalcy after the Covid-19 turbulence which resulted in outperforming the S&P/ASX 200 Index by 7.1 per cent, and delivering a positive return of 31 per cent in Australia. The strong rebound has been led by the industrial sector, with the boon in e-commerce fueling a demand in warehousing, storage and logistics facilities. The retail sector has also recovered somewhat after a disappointing FY20, buoyed by consumer confidence and pent-up demand during lockdowns. In addition, demand for offices has also soared in the country due to increased customer confidence of returning to normalcy an aspect that has led to many investors to be able to take advantage of the growing housing and retail unit demand to invest more in REIT properties (Bdo.com.au. 2022).
The rebound looks like FY21 was a cracking year, but it’s really demonstrating that the market probably reacted too heavily in 2020 with all the COVID-19 uncertainty, and 2021 has seen a reversion to a more stable view of the sector. The demand and preference to invest in REITS properties is brought about by the fact that they know how to reinvent and mitigate any risks that might come along their way hence resulting to increasing investment returns for investors. To better understand how property investment has boomed in the sector, the significant growth of REIT prices in 2021 after the lapse of 2020 showing that REITs continue to maintain lower gearing levels, with an average c.25% gearing in FY21. This compares with the sectors long-term gearing levels of c.30% as shown below.
Article 2: Financial Review
The article shows that during the first two phases of the pandemic in early 2020, global regions responded rather uniformly, with North America declining -45.6%, Europe declining -39.6%, and Asia declining -38.5% from Feb. 21, 2020 – March 23, 2020. From March 23, 2020 – Nov. 8, 2020. However, with time as people came to realize that the pandemic was here to stay and they had to diversify their investment in order to take advantage of the growing market size and demand for housing units, they invested more on REITS he regions rebounded similarly with total returns of 39.5% for North America, 37.3% for Asia and 38.4% for Europe. From Nov. 8, 2020 – Nov. 30, 2021, the regions begin to show notable divergence. Over this period, North America posted return of 46.9%, compared to 21.9% for Europe, and 10.3% for Asia. This significant growth is attributed to various factors among which include awareness of investors on the importance of REITS and how its savings is secure and less troublesome as compared to other saving avenues. The growth of investment during this period shows that diversification of investments was regarded as a safe way through which investments could triple in value and be able to improve the returns that were collected from the sector (Reit.com. 2022).
Posted in 28th December 2021, the article noted that REIT investment values romped in 2021 as the value of property soared in the market after The FTSE NAREIT Equity REITs index was up 36% in 2021, compared with 26% for the S&P 500 as of Dec. 23. The property investment growth in 2021 will be regarded as the best year of performance since 1976 with a possibility of the investment growth momentum being expected to increase in 2022. However, sadly the journal noted that REIT investment and returns are likely to be affected in 2022 with the rising interest rates and inflation that is being experienced in the society after the pandemic as there is increased adjustment of property and asset values to cope up with the demand and supply mismatch.
The launch of vaccines in 2021 boosted the performance and share prices of some REITs faster than expected as investors were now sure of getting handsome returns from their investments hence providing an opportunity for increased investment and focus on increasing the value of individual assets that in return has led to increase in value of REIT assets.
Updated in Nov 26th 2021, the article noted that REITs investments are making a major comeback in the housing and investment sector due to the growing demand for housing in the market. The popularity of this investment mode is based on the fact that it has an ability of giving investors diversification strategy for those who are looking to re-allocate portions of their fixed income portfolio with an eye on a potential rise in interest rates in the future
The rise in value of REIT investments is based on the fact that Covid-19 led to increasing global inflation pressure an act that led to REITs investments to perform better than stocks and bonds in the market. The upward trend of inflation experienced globally was a blessing in disguise to the real estate sector as it led to also an increase in real estate rents because lease is usually tied to prevailing economic conditions hence resulting to improving the level of investment in REITs due to the increased demand that was experienced in the market (The Economic Times. 2022).
Article 3: BDO Australia
COVID-19 led to shortage of basic needs an act that led to rising inflation across the globe and since inflation is tied to lease prices, the prices of leasing housing units also skyrocketed an act that led to growth of REITs investment returns from these programs. Investors are risk averse and whenever they see an opportunity in the market that is likely going to expand their incomes, they embrace such investments by investing more hence this is the reasons why the value of REITs investments during the COVID-19 period was significantly high to date because real estate income has continued to increase and investors are getting more revenue that has enhanced performance of the sector. The post-lockdown, vaccinated economy is bound to make bigger comebacks as more investors have become keen and noted the increased investment value that is being generated from the sector has provided an opportunity through which the assets invested in real estate can increase in value and safeguard the interest and returns of investors. The growth of REITs investment programs provides an opportunity through which investors can increase their returns from engaging in real estate investment which arise as a result of diversification of investments and growing demand for housing units in the market that has made the prices of housing units to rise significantly in the market. unlike other sectors that performed decimally, real estate sector has developed and the growth for housing units demands has also shot significantly in recent years.
Conclusion.
The increased preference of investing in this form of investment is because REITs are easily convertible into cash compared to when an individual or group wants to liquidate land or building hence enabling an investor to be able to grow their income and come up with a program that can enable them to diversify and grow their income streams regardless of the period of the year during which there is a pandemic or what. The growth of REITs investment and returns is because, since emergence of COVID vaccines and the broad economic reopening, the real estate market has largely stabilized than prior to the pandemic outbreak. For instance, retailers that were impacted during the pandemic rebounded as shoppers returned with open wallets, there is a full booking of restaurants due to easing of Covid containment restrictions an act that has led to many tourists both local and foreign to increase the demand for housing units. The relatively low cost of capital which is fueling private real estate transactions and supporting higher prices for properties has also been the reasons for increased investment in REIT programs that are experienced in the society.
Reference List.
Business Daily. 2022. Why real estate investment trusts hold growth potential. [online] Available at: <https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/why-real-estate-investment-trusts-hold-growth-potential-3674162> [Accessed 28 April 2022].
The Economic Times. 2022. REITs are making a powerful comeback in post-lockdown India. [online] Available at: <https://economictimes.indiatimes.com/markets/stocks/news/reits-are-making-a-powerful-comeback-in-post-lockdown-india/articleshow/87911473.cms> [Accessed 28 April 2022].
Australian Financial Review. 2022. New year brings fresh opportunity for property bankers. [online] Available at: <https://www.afr.com/property/commercial/new-year-brings-fresh-opportunity-for-property-bankers-20220106-p59m8v> [Accessed 28 April 2022].
Bdo.com.au. 2022. A-REITs have roared back to life: BDO’s 27th Annual report. [online] Available at: <https://www.bdo.com.au/en-au/news/media-releases/a-reits-have-roared-back-to-life-findings-from-bdo-s-27th-annual-survey-of-australian-real-estate-i> [Accessed 28 April 2022].
Reit.com. 2022. Global REIT and Listed Real Estate Performance During the Pandemic. [online] Available at: <https://www.reit.com/news/blog/market-commentary/global-reit-and-listed-real-estate-performance-during-pandemic> [Accessed 28 April 2022].
Reit.com. 2022. The Outlook for REITs During the COVID-19 Crisis. [online] Available at: <https://www.reit.com/news/blog/market-commentary/the-outlook-for-reits-during-the-covid-19-crisis> [Accessed 28 April 2022].
Real Assets. 2022. Viewpoint: Why listed real estate will benefit from vaccine-driven recovery. [online] Available at: <https://realassets.ipe.com/news/viewpoint-why-listed-real-estate-will-benefit-from-vaccine-driven-recovery/10051943.article> [Accessed 28 April 2022].
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