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Indirect Investing in Overseas Property

Peter Hemple looks at alternative ways of gaining exposure to overseas property

Real Estate Investment Trusts (REITs) are a great way for property  investors to diversify their portfolios. While REITs originated in the US, international REITs have sprung up around the world offering investors access to emerging markets, without the need to get on a plane and research an individual property.

The REIT will own and, more often than not, actively manage commercial/residential real estate covering every sector in mature markets like the US, where most REITs are publically traded on the stock exchange.

However, with regards to international REITs, it is usually easier to invest using an Exchange Traded Fund (ETF), since they are traded on the major stock exchanges and provide greater liquidity than individual foreign REITs.

Property ETFs invest in the equity of real estate companies and REITs and the major advantage of ETFs (liquidity) was highlighted last summer shortly after the EU Referendum. At that time, high-profile direct property funds run by Aviva, Henderson, Standard Life, Aberdeen Asset Management and Canada Life were forced to temporarily suspend all redemptions. However, UK-focused ETFs continued to trade without interruption, albeit with wider spreads than would be expected in ‘normal’ market conditions.

Born in the USA
Every country is considerably behind the US when it comes to REITs. For example, India is still waiting for its first ever REIT, which is likely to be launched later this year (more on that later). But in the US you can invest in virtually any type of property through a REIT. Retail REITs account for almost 25% of the REIT market in the US and if you visit a shopping mall it is most likely owned by a REIT.

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