What are the advantages of ETFs over physical real estate?

Thanks to the fact that ETFs are listed on exchanges, they provide higher liquidity compared to physical real estate where transactions can take months. ETF gives you exposure to different real estate sectors (e.g. offices, industrial, residential) and regions thus making your portfolio more diversified than a single physical property.

REITs are special legal vehicles designed for investing in real estate. They were created to allow individual investors to invest in real estate through equity or bonds, before them you would need a lot of capital to buy physical buildings.

Which real estate sectors does this Real Estate ETF invest in?

Residentials - Apartment buildings, flats, houses, student housing, manufactured homes, single-family homes. Offices - Office buildings, skyscrapers, office parks, in central business districts or suburban areas. Industrials - Factories, industrial facilities, warehouses, distribution centers. Hotels - resorts, other leisure. Healthcare - Hospitals, elderly care. Retail - Shopping centers, individual stores, large (regional) shopping malls, outlet centers, grocery-anchored shopping centers and power centers that feature big box retailers.

REIT ETF

Invest in real estate

Marketing Communication

VanEck Global Real Estate UCITS ETF

100 real estate stocks
85% REITs and 15% non-REITs
REIT ETF by VanEck is globally diversified
Semi-annual rebalancing

ETF Details

Basis-Ticker: TRET
ISIN: NL0009690239

TER: 0.25%
AUM: €277.8 M (as of 24-12-2024)
SFDR Classification: Article 8

Lower risk

Typically lower reward

Higher risk

Typically higher reward

Risk of a REIT ETF: You may lose money up to the total loss of your investment due to Equity Market Risk and Industry Concentration Risk as described in the Main Risk Factors, KID and Prospectus.

What is a REIT ETF?

The VanEck REIT ETF invests, amongst others, in REITs, which are tax transparent real estate investment vehicles.

A REIT (or Real Estate Investment Trust) is a legal vehicle specifically designed for investing in real estate. REITs were first introduced in the United States in 1960 in order to encourage individual investors to invest in real estate through equities or bonds. Before, typically only high net worth investors could afford to invest in real estate as it involved buying physical buildings. Essentially, REITs are companies that own, manage, or finance income-generating real estate across a variety of sectors, including residential, commercial, and healthcare facilities.

What are the Characteristics of REITs?

Since 1960, more and more countries have introduced REIT regimes like the one in the US. Local characteristics differ, but most REIT regimes have the following in common:

A REIT should primarily earn rental income from real estate

A REIT needs to distribute most of its earnings in dividends

A REIT shareholder only pays tax once

How Many REITs Exist?

According to the Nareit, there are 940 REITs as of December 2023, up from 845 in December 2020. In most regions, the number of REITs has increased in recent years as more countries have established REIT regimes. Particularly strong growth can be observed in Europe, where the sector grew dramatically by 31%. A notable exception has been North America, where mergers and acquisitions have resulted in a smaller number of larger REITs. Often, new REITs are created as a result of large real estate developers, such as Blackstone, floating part of their assets on a public stock exchanges.

Number of Listed REITs

Source: Nareit, https://www.reit.com/sites/default/files/2024-05/2024_Global_REIT_Brochure_MAIN.pdf

Countries With the REIT-Like Regimes
Introduction of REITs

Source: NAREIT, https://www.reit.com/investing/global-real-estate-investment

The following table indicates per country when a REIT regime has been introduced:

swipe

1960	United States
1969	Netherlands
1969	New Zealand
1969	Taiwan
1971	Australia
1993	Brazil
1993	Canada
1995	Belgium
1995	Turkey
1999	Greece
1999	Singapore
2000	Japan
2001	South Korea
2003	France
2003	Hong Kong
2005	Bulgaria
2005	Malaysia
2005	Thailand
2006	Dubai
2006	Israel
2007	Germany
2007	Italy
2007	United Kingdom
2008	Pakistan
2009	Costa Rica
2009	Finland
2009	Spain
2010	Mexico
2010	Philippines
2011	Hungary
2013	Ireland
2014	India
2014	Kenya
2015	Bahrain
2015	Vietnam
2016	Saudi Arabia
2018	Oman
2019	Portugal
2020	Sri Lanka
2021	China
2023	Mauritius

Source: NAREIT, https://www.reit.com/investing/global-real-estate-investment

Investors in REIT ETF Could Benefit From the Following Advantages of REITs

REITs are legally required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends, which often results in higher yields compared to other equities.

Since many REITs are publicly traded on major stock exchanges, they offer the liquidity of stocks, making it easy to buy and sell shares.

Investing in REITs provides diversification in an investment portfolio with exposure to various segments of the real estate market, including commercial, residential, healthcare, and retail properties.

REITs are typically managed by experienced real estate professionals, reducing the burden on individual investors to manage properties.

Besides the high yield from dividends, REITs also offer potential for capital appreciation as the value of the real estate assets they own can increase over time.

For many individual investors, direct investment in commercial real estate is out of reach; however, REITs allow access to this market segment through the purchase of REIT shares or via the REIT ETF.

Being publicly traded, REITs undergo valuation regularly, providing investors with clear insights into their financial health and performance.

What Types of REIT ETFs Exist?

It is possible to say that there are two types of REIT ETFs, which include different subtypes. One is broad REIT ETF, offering a diversified portfolio of REITs, and Sector-specific REIT ETFs, predominantly focusing on specific subsectors.

Within the sector-specific REIT ETF variant, we distinguish the following:

Residential REITs specialize in owning and managing various types of residential properties, such as apartment complexes, student housing, and multifamily dwellings. These REITs generate revenue mainly from the rent payments of their tenants. The performance of residential REITs often reflects broader economic conditions, such as employment rates and population growth, which influence demand for housing.

Office REITs invest in office buildings and earn income by leasing space to businesses and professionals. The success of these REITs depends on several factors, including the location and quality of their properties, the economic health of the region, and the stability of commercial tenants. Office REITs are particularly sensitive to business cycles as economic downturns can reduce demand for office space.

Industrial REITs focus on industrial facilities such as warehouses, distribution centers, and factories. These properties are pivotal in the supply chain and e-commerce sectors, driving demand for logistics spaces. Industrial REITs benefit from trends in online shopping and global trade, often showing resilience during economic shifts.

Hotel REITs own and operate hotels and resorts, deriving revenue from accommodations, dining, and other services. The performance of hotel REITs is highly susceptible to the state of the travel and tourism industry, making them more volatile as they react to economic changes, seasonal patterns, and consumer preferences.

Healthcare REITs invest in properties such as hospitals, nursing facilities, medical offices, and retirement homes. These REITs tend to offer stable returns due to the essential nature of healthcare services and an aging population. The demand for healthcare-related real estate is somewhat shielded from economic downturns, providing a resilient investment option.

Retail REITs own and manage retail spaces such as shopping centers, malls, and freestanding stores. The revenue of retail REITs comes from renting space to retailers. These REITs are closely tied to consumer spending habits and the economic environment, facing challenges from shifts in retail, such as the rise of e-commerce, which influences the physical retail landscape.

REIT ETF Could Provide Stronger Growth Compared to a Global Market

Investors in REIT might benefit not only from a dividend flow, but also from a price appreciation of these stocks. On a long term basis, a REIT ETF might even outperform large diversified benchmarks, like MSCI World Index.

Source: VanEck.

Risks of a REIT ETF

Investing in this Fund can entail risks. These include:

Foreign Currency Risk
Industry or Sector Concentration Risk

Because all or a portion of the Fund are being invested in securities denominated in foreign currencies, the Fund’s exposure to foreign currencies and changes in the value of foreign currencies versus the base currency may result in reduced returns for the Fund, and the value of certain foreign currencies may be subject to a high degree of fluctuation.

The Fund’s assets may be concentrated in one or more particular sectors or industries. The Fund may be subject to the risk that economic, political or other conditions that have a negative effect on the relevant sectors or industries will negatively impact the Fund's performance to a greater extent than if the Fund’s assets were invested in a wider variety of sectors or industries.

Can I Invest in a REIT ETF?

In contrast to the US, there are no pure REIT ETFs available in Europe to our knowledge. European real estate ETFs all invest part of their portfolio invested in non-REIT real estate stocks because Europe’s fragmented nature means there is no homogenous REIT regime. This means there are fewer REITs and a pure REIT ETF would exclude some of the most interesting real estate stocks.

For instance, the VanEck Global Real Estate ETF is 85% invested in REITs, with the balance of 15% in straightforward real estate stocks¹. Additionally, investing outside the REIT universe aids diversification of risk. Examples of non-REIT stocks in the VanEck Global Real Estate ETF are:

Vonovia SE, a large German residential real estate company. Under German law, residential real estate companies cannot qualify as REITs.
Mitsubishi Estate Co. Ltd., a diversified Japanese real estate company which also has a large real estate development business.
Castellum AB, a Swedish real estate investment company. There is no REIT regime in Sweden.

¹ As of 31 May 2024

Key Documents and Links

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Phone: +49 (0)69 4056 695 0
Email: EMEAinfo@vaneck.com