31 March 2023

REIT - Real Estate Investment Trust

Real Estate Investment Trusts (REITs) are an asset class that invest in real estate and offer investors the opportunity to invest in the real estate market in a more accessible and diversified way. In Portugal, REITs are known as SIGI (Sociedades de Investimento e Gestão Imobiliária), a financial instrument created in 2019.

REITs are companies that invest in real estate and whose goal is to generate revenue from the lease or sale of the property. To become an REIT, a company must meet certain legal requirements, including investing a minimum of 75% of its net assets in real estate for lease or other forms of economic exploitation.

REITs offer a number of advantages to investors, including risk diversification as investments are spread across different property types and geographical locations. In addition, REITs offer a regular income to investors through the rental of properties, as well as the possibility of long-term capital gains from property appreciation.

Another advantage of REITs is their favourable tax structure. In Portugal, REITs enjoy tax exemption on the income generated by the properties, provided that this income is distributed to shareholders in the form of dividends. This makes REITs an interesting option for investors looking for an alternative to bank deposits or other fixed income assets.

However, REITs also present some risks to be taken into account. For example, the market value of real estate can fluctuate and, in some cases, depreciate significantly. In addition, the profitability of REITs can be affected by changes in market or regulatory conditions.

Despite these risks, REITs have gained popularity in Portugal since their creation in 2019. At the end of 2021, there were 14 SIGIs listed on the Portuguese stock exchange Euronext Lisbon, which invest in a variety of properties, including offices, shopping centres, hotels and residential properties.

REITs or SIGIs thus represent an interesting option for investors looking for an affordable and diversified way to invest in the Portuguese real estate market. However, it is important that investors understand the risks involved and carefully evaluate their options before investing.

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