REITs have outperformed the S&P 500 with total returns of 28 percent in both 2009 and 2010. This percentage is, however, far below the gains REITs have made before the onslaught of financial crisis. Nevertheless, investors are upbeat with the performance as Real Estate Investment Trust still kindles a shimmering hope of investment return in the real estate industry.
A Real Estate Investment Trust is a corporate entity that identifies areas of investment opportunities in residential and commercial real estate. As the residential real estate market is more affected than the buying, selling and rental market of commercial real estate, it is surprising to see REITs performing better in residential segment of the real estate market.
It is basically the residential rental market, especially the rentals of apartment complexes, that has contributed largely to the success of REITs. The apartment rentals have yielded the maximum 47 percent, followed by lodging and resorts with 43%, free-standing stores with 37% and regional shopping malls with 36 percent.
There may be several factors that are responsible for a better-performing apartment rental industry. Housing prices are not stable and there are not enough financing sources to fund a home purchase. Lenders are tightening mortgage underwriting process and even FHA loan is not easily available. All these factors have made it a better option to rent than to buy an apartment.