What are the factors affecting the Return of REITs?
What are the factors affecting the Return of REITs?
REITs unit holders are subject to similar risks as holders of other diversified asset portfolios. Some of the factors which affect returns on REITs are :
1.Demographics
Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns and population growth. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades.
Investors must narrow down the type and location of potentially desirable real estate investments long before the trend has started.
2.Interest Rates
Interest rates also have a major impact on the real estate markets. Changes in interest rates can greatly influence a person's ability to purchase a residential property. That is because as the interest rates fall, the cost to obtain a mortgage to buy a home decreases, which creates a higher demand for real estate, which pushes prices up. Conversely, as interest rates rise, the cost to obtain a mortgage increases, thus lowering demand and prices of real estate. However, when looking at the impact of interest rates on an equity investment such as a real estate investment trust (REIT), rather than on residential real estate, the relationship can be thought of as similar to a bond's relationship with interest rates. When interest rates decline, the value of a bond goes up because its coupon rate becomes more desirable, and when interest rates increase, the value of bonds decrease. Similarly, when the interest rate decreases in the market, REITs' high yields become more attractive and their value goes up, thus affecting the market price of REITs.When interest rates increase, the yield on an REIT becomes less attractive and it pushes their value down.
3.The Economy
Another key factor
REITs unit holders are subject to similar risks as holders of other diversified asset portfolios. Some of the factors which affect returns on REITs are :
1.Demographics
Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns and population growth. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades.
Investors must narrow down the type and location of potentially desirable real estate investments long before the trend has started.
2.Interest Rates
Interest rates also have a major impact on the real estate markets. Changes in interest rates can greatly influence a person's ability to purchase a residential property. That is because as the interest rates fall, the cost to obtain a mortgage to buy a home decreases, which creates a higher demand for real estate, which pushes prices up. Conversely, as interest rates rise, the cost to obtain a mortgage increases, thus lowering demand and prices of real estate. However, when looking at the impact of interest rates on an equity investment such as a real estate investment trust (REIT), rather than on residential real estate, the relationship can be thought of as similar to a bond's relationship with interest rates. When interest rates decline, the value of a bond goes up because its coupon rate becomes more desirable, and when interest rates increase, the value of bonds decrease. Similarly, when the interest rate decreases in the market, REITs' high yields become more attractive and their value goes up, thus affecting the market price of REITs.When interest rates increase, the yield on an REIT becomes less attractive and it pushes their value down.
3.The Economy
Another key factor