Comparing real estate crowdfunding sites to REITs

Real estate crowdfunding sites is not interchageable with real estate investment trusts (REITs). While both have a few similar features, these are distinct from each other.

To examine more closely, a REIT is an incorporated entity that acts as an investment agent in the area of real estate and real estate mortgages. It owns properties that generate income through purchases, sales, rentals, and leases. Most of the income derived from its operations is paid as dividends to investors.

The three REIT classifications are:

  • Equity REIT, which earns through buying, selling, renting out, and leasing properties
  • Mortgage REIT, which earns through interests on real estate loans
  • Hybrid REIT, which earns from combining equity REIT and mortgage REIT

The two types of REIT are:

  • Publicly traded REIT, accessed via stock exchanges
  • Privately traded REIT, accessed via channels that require investor accreditation.

There are many REITs around the world, and these are structured according to regulations in their respective countries of operation. Emirates REIT became the first such company in the UAE, launching in 2010 and getting listed on Nasdaq Dubai in 2014. It is subject to provisions of the Investment Trust Law 2006 (otherwise known as the Dubai International Financial Centre Law Number 5), and is aptly described as an Islamic REIT that is Shari’ah-compliant.

The HBR portal vis-à-vis REITs

The projects showcased in the HBR portal and those owned by REITs have similar characteristics, albeit limited.

One similarity is that both are collective real estate investment schemes, and investors effectively own a stake in the properties they have financially backed. For example, if they have chosen to fund the expansion of a five-star hotel, investors can say that they are part-owners of that hotel.

Another similarity is that the opportunities from the HBR portal and the REITs enable investors to gain without going through the trouble of acquiring, disposing, managing, and maintaining the properties themselves. By law, investors are prohibited from participating in the day-to-day operations pertaining to the properties.

Moreover, the HBR portal compares with a privately funded REIT in that both require investors to complete the registration process before they can participate.

Between the HBR portal and REITs, two major differences are:

  • HBR opportunities are project-specific, unlike REIT opportunities that bank on the performace of the REITs, or the corporate entitites, per se. That said, HBR investors are afforded a greater control of their holdings that their REIT counterparts.
  • HBR investments are not directly affected by stock-market volatility, unlike publicly traded REIT investments that are impacted by fluctuations.
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