Why PEF’s are taking over REITs

In South Africa, owning and investing in tangible real estate has always been a solid go -to investment, and for good reason.  However, over recent years REITs (Real Estate Investment Trusts) have become increasingly popular, due to it’s ‘armchair investor’ nature.  Today, the PEF (Private Equity Fund), is the new kid on the block,  mainly because it’s not only hands-off but can also get you that much desired citizenship.

What’s the difference?

A real estate investment trust (REIT) is a type of company that owns, operates, or finances income-producing commercial real estate properties, in which investors can purchase shares that are traded like stocks. Private Equity Funds allow passive investment in real estate with more direct ownership of the actual properties; they raise capital through investors. 

Many REITs are structured as investment companies, and outsource much of the real estate services, which can lead to projects that are delayed and over budget and inopportune acquisitions, especially in current times.  Private equity firms do the opposite:  they identify the asset, secure financing, then raise capital. Because private equity firms are also invested in the deals, their incentives align with those of the investor in that they both want a profitable outcome. 

Why does the PEF have the edge right now?

The most obvious advantage of the Private Equity Fund is that you can invest €350,000 in one fund in Portugal, and apply for your Golden Visa.  Aside from the visa, you will earn an attractive dividend, and by the time you have finished your obligatory 5 years of residency, you can essentially cash in your investment, make a potentially sizable profit, and attain eventual passports for you and your family. 

The minimum investment is currently €350,000, however, the Portuguese government is increasing the Golden Visa requirement to €500,000 for next year.