The investor never takes legal title to the buildings
A worked RES examination question on trust investment vehicles, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.
The question
Ms Faridah has $8,000 set aside and wants a stake in commercial buildings that she can turn back into cash quickly if she needs to. Rather than buy a small unit outright, her adviser suggests she put the money into units of a real estate investment trust listed on the exchange.
Which statement is correct?
The answer, and why
Answer: A
The rule. Units in a listed real estate investment trust trade on the exchange with no minimum investment. The unit holder is a beneficiary; the trustee holds the underlying property. The investor never takes legal title to the buildings.
Why A is correct. Ms Faridah can invest her $8,000 — there is no minimum — and she holds as a beneficiary while the trustee holds the buildings. That also gives her the liquidity she wants.
The other options.
- B invents a minimum outlay. There is none for listed units.
- C gives her legal title to a share of the buildings. She holds units; the trustee holds the property.
- D requires approval to hold commercial property. Buying units is not acquiring the property itself.
Exam note. A unit holder is a beneficiary, not a titled owner, and there is no entry minimum. Liquidity is the point of the listed structure.
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