Ever since legislative procedures for the Real Estate Securitization Act were completed, Taiwan has been seeing an influx of new real estate investment trusts (REITs). Following this market trends, many domestic investment trust companies also offer REIT funds that hold mostly overseas REITs. The returns of these funds vary according to their investment objective. Facing so many REIT related products, investors need to establish appropriate investment strategies.
This paper reviews related domestic literature to examine factors that influence investment decision and separates them into external, internal, and operational factors. External factors refer to the overall political and economic environment, regulations, tax rules, and market factors. Internal factors include participating organizations, investment targets, and investor types. Among them, participating organizations refer to property management companies, authorized agencies, or appraisal agencies; investment targets are affected by sales price, rental income, property type, location, and tenants; and investor types are divided into individual and institutional investors. Finally, operational factors include risks, returns, and asset allocation.
After analyzing all of these factors, we conclude that investors should first understand their objective and risk tolerance. Conservative investors or those new to REITs can begin by investing in low-risk REITs. Investors who already own stocks and securities can add low-correlated REITs to their investment portfolio to increase returns without adding too much risk. Long-term investors with greater risk tolerance and those seeking higher returns may consider REIT funds that invest in high-yield overseas REITs. These include global REIT funds which are more diversified but with higher management fees and regional REIT funds which focus on specific locations with both higher returns and higher risks. Among the different types of REIT funds, equity funds have greater risks and rewards compared to balanced funds.
When investing in a REIT, the investor should understand the fund’s characteristics, the fund manager’s past investment performance, and the size of the fund. With this understanding, investors are able to make wise investment decisions in the investment on REITs.