Study by Ernst & Young about real estate funds

As you have read in some other blogs, Ernst&Young is having some big issues which does not stop them for doing their job. On their site I found a study that they have recently achieved. Every year, E&Y investigates worldwide real estate markets. As a result of this study, it seems that listed real estate companies or specifically Real Estate Investment Trusts (REIT’s) helps to get other real estate investments out of the economic troubles. Nowadays, quality of assets is much more important than it used to be. Essential parts to execute transactions are location, term and quality of the rent.

Geert Gemis, associate of Ernst&Young Tax Consultants, believes that REIT’s are created to build a market for investors so they can buy real estate on a more efficient way. The study proved that the REIT’s has reached this expectation. Furthermore, they have reached very high share prices and earned milliard of dollars. These high results are not the same in every country, for instance the profit of the REIT’s are much higher in the United States in comparison with Japan. Belgium has established a return of 17.2%.

Another result of the study is the weaknesses of the REIT-model in the financial crisis. The crisis makes it difficult to conserve money, even though it is better. Geert Gemis said that maybe the state has to reconsider their rules about the REIT’s. Therefore, the thrusts have to divide a large part of the earnings, usually between 80% and 95%, to disburse as a dividend. The capacity to conserve money can play a critical role in the next worldwide financial crisis.

I think that the state has to rethink the rules about the REIT’s, when they always have to disburse 80% to 95%, this could end in a negative result. Consequently, E&Y is doing a good job to research the influences of the REIT’s every year.

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