REITS have been falling lately and my portfolio was not spared either. There are a few reasons to this which I will simplify and explain in this article. Investing in REITS have been a favourite among investors due to its income generating feature which provides good dividend income for investors. Typically, we can look at around 5%-7% dividend yield investing in REITS. Will this be sustainable going forward?
The Rise of Interest Rates
The main reason for the drop in REITS price is due to the rise in interest rates. Why is this rise in interest rates so damaging to REITS in the first place? To explain it simply, the main cause is because the rise in interest rates make REITS investment less attractive. There are 2 main reasons to this:
- Interest expense reduces distribution of income
REITS are required to payout 90% of its taxable profits to shareholders …