How does Real Estate Investment Trust (REIT) Work?
REITs pool up the fund of several investors with the same investing goals and then invest the fund into different real estate assets that generate income. Then the REIT manages the properties, collects rent, pays expenses, and distributes income generated to shareholders in the form of dividends. Investors can easily buy a share of these companies on the stock exchange. When they buy the shares of these companies, they are merely buying a portion of the underlying real estate assets owned by the REIT without actually owning the physical property themselves and vice versa. The value of a REIT’s shares is determined by the free forces of supply and demand in the market and by the performance of the underlying real estate assets. Besides this, REITs provide capital appreciation opportunities in the long run as the value of the underlying real estate assets owned by the REIT can appreciate over time.
A study by Deloitte projects the global REIT market to reach $4.8 trillion by 2027, growing at a CAGR (Compound Annual Growth Rate) of 5.7% from 2022 to 2027.