This sounds very unreasonable to me. How much return would you think is sufficient to compensate for the lack of capital appreciation?

Investing into property directly makes more money, provided that you make sensible purchases on a rental yield basis. The reason is simple: leverage. You can borrow up to 90% to buy a property and rent it out. That vastly inflates the real return to you.

That said, I still invest in REITs myself. It's easier, more liquid and I hate dealing with tenants.

This is different from T+3. This is pledging shares as collateral in order to get a loan to buy more shares. I'd imagine it's not much different from a loan to buy a house or a car, except that if the value of your collateral suddenly falls, you face a margin call, i.e. an order from your bank to provide more capital or have the bank force sell your shares off.

Do you really believe that directly investing in property is more risky than REITs? At least it seems to me that you have more of a sense of control when you invest in a piece of your own property. It's up to you to put in the legwork to scope out a property, interview tenants, periodically check up on them etc. With REITs, yeah, you can read all the reports and filings, but at the end of the day, it still comes down to trusting that they aren't lying about they say.

As I've said before, I like REITS a lot, but I'm still scared of a day when one of them goes belly up and it turns out that they've been playing games with their accounts, not being paid rent, didn't maintain their properties well, get scammed by their related party big brother company etc. I hope that day will never comes, as REITs grow larger, it seems almost inevitable to me that something bad might happen with one of them.

This post has been edited by wankongyew: Jun 11 2010, 01:57 PM

All that is still anecdotal data however. If we want to compare anecdotes, there are members on the Property Talk side of the forum who claim that they can get yields of 40% or more.

Anyway, if someone is the type who would be persuaded by anecdotes, REITs is probably the wrong place to be. You'd expect slow and steady gains from REITs, not dramatic returns. I don't think you can "get rich" through REITs. You need to have a significant bit of capital already to make it interesting. It is theoretically more possible to "get rich" through direct property investment if you manage to make exactly the right bet at the right time, but more often than not, you just get your hands burn.

But how can the REIT own Sungei Wang Plaza? I thought that its lots are completely owned by private individuals. Did the REIT buy many lots from individuals? That would explain the low yield. It must have been expensive to persuade people to let go of their Sungei Wang lots...

I don't know why any of you would be interested in these IPOs. As far as I can tell, their predicted yields are lower than every other REIT already on the market. Plus, there's the fact that the REITs in Malaysia have a history of underperforming in trading after they launch. I don't expect that you'd be able to flip them for a profit on the first day of trading like in the old days.

Please correct me if I'm wrong.

Huh? That doesn't make sense. Surely the yield is based on current price. My quick calculation confirms that this is so. NAV is only used to compare the current price to the estimated value of its assets, I thought?

I'm curious how people evaluate their yields. Does everyone use their historical purchase price like this? Shouldn't it make more sense to calculate the yield using the current price and put in the gain in price as a paper gain? That way, if you see an opportunity for a higher yield elsewhere, it would make more sense to sell, lock in the paper gain and put everything into the higher yielding alternative? The question of course is whether or not you see further price appreciation in that stock, which would affect that decision.

My personal dilemma is more related to physical property than REITs, but I think the same reasoning applies to everything. In my case, for a condo that I own, my rental yield was a respectable 6%, but now the condo value has gone up while my rental has not, so the yield has dropped to something like 4%. If I don't think the condo price will go up further, shouldn't it make more sense to sell the condo and put all the money into some REITs that can yield 7 to 8 percent?

Yeah, but my question isn't about the relative advantages and disadvantages between REITs and property. It is between calculating yields using the historical purchase price or the current market price. It seems to me that we should always use the current market price to get the true yield. Historical pricing flatters the yield too much, whereas if we cash it in to realize the gain and reinvest everything in something higher yielding compared using current market prices, we should earn more overall.

It seems to me that the highest yielding REIT at the moment is Tower, but it doesn't seem to be a popular choice on LYN. May I ask why?

Which REIT stocks are down?

This is due to the fire damage? Seems like a good time to buy more.