Globalization and technological progress aided in unlocking new opportunities for flow of funds for the purpose of investment in the ‘ostensible’ localised real estate assets and their derivatives. As a consequence, this led to the creation of an indirect real estate investment segment which are primarily based on equity and debt.

Unlike direct real estate, the investor here has limited control and ownership over the investment as it principally infers possession of ‘paper’ assets backed by property where the investor is entitled to an income financed via issuer’s portfolio of properties. Obliquely, the investment is towards the expertise of the issuer (property / fund manager) wherein the performance is not exclusively relative to the performance of the properties contained within the investment instrument.

Equity-based

These involve buying shares in REITs, real estate exchange-traded funds (ETFs), property unit trusts (open-ended funds), investment trusts (closed-ended funds) and company(s) that own, manage or develop physical property. Financial returns are retrieved in the form of dividends with its value being contingent on the market performance where sophistication persists and varies across different countries due to differences in regulations, management structure, available net income for distribution and differential tax treatment.

Debt-based

Involves investing in a mortgage loan pool such as CMBS or RMBS that form asset-backed securities (ABS) where issuers or lenders securitize mortgages exclusively. Upon payment of property loans by borrowers, these payments provide a periodic cash flow to investors holding the respective CMBS / RMBS; however, these are subject to increased risk due to real estate debt exposure and greater risk in comparison to other securities during market stress.