Real estate has always been a popular investment avenue for Indians. This traditionally means buying physical property – apartments, commercial spaces, or countries. However, in recent years, REIT (Real Estate Investment Trust) has opened opportunities for investors who want to adopt real estate returns without plaguing real estate management or the requirements of huge capital requirements.
This blog explains REIT, working in India, and why it has become a popular investment option.
What is REIT’s?
Real Estate Investment Trust (REIT) is a company that owns, operates or raises revenue in sectors such as office space, shopping centers, warehouses, and hotels. Think of REIT’s like an investment fund – but instead of bundle money to invest in stocks or bonds, the REIT allows for investment in a bundle of real estate assets. Investors will gain a share of income achieved primarily through rent without actually owning or managing the property itself.
How do REIT’s work in India?
Here is a simple breakdown of the features of REIT’s in India:
1. Pooling Fund: How REIT’s collects money from several large and small investors.
2. Real Estate Investment: Funds are used to sell, manage and operate high quality commercial real estate such as office parks, shopping centers, and logistics centers.
3. Earn Rental Income: These properties generate rental income from tenants.
4. Distribution Yield: REIT’s legally required to distribute at least 90% of the cash flows to the investors in the form of dividends.
5. Trade with Stock Exchange: India’s REIT’s is listed on large stock exchanges such as NSE and BSE. In other words, you can buy and sell them just like stocks stocks.
Regulatory Framework
The Securities and Exchange Commission of India (SEBI) has already introduced regulations in 2014 to ensure transparency, accountability and investors; protection. Some important regulations require :
* REIT’s to invest 80% of its assets in completed property where at least which are generating revenue.
* Only Up to 20% can be invested in real estate under construction or other assets such as mortgage-backed securities.
* Compulsory regular disclosures of information about real estate reviews, income and other financial data.
Benefits of Investing in a REIT
* Affordability: You can invest with just thousands of rupees, as compared to traditional real estate.
* Liquidity: REIT’s Units trade on stock exchanges, offering features similar to stocks – something that lacks in physical real estate investment.
* Diversification: REITs often have a portfolio of real estate across cities and sectors, providing integrated diversification.
* Stable Income: REIT’s generate a certain amount of cash flow through rental. In other words, it is attractive for income-oriented investors.
* Transparency and Regulation: SEBI’s regulates investor protection and standardized practices.
Popular REIT’s in India
• Embassy Office Parks REIT: India’s first REIT’s.
• Mindspace Business Park
• Brookfield India Real Estate Trust
• Indian Real Estate Trust (Expected soon)
Each of them has a portfolio of commercial properties leased to the top multinational companies.
Are REIT’s right for you?
If you’re looking for an affordable, relatively stable and transparent way to invest in real estate without managing your tenants or real estate yourself, it can be an intelligent choice. They are perfect for investors looking for a consistent income with capital increase over time. However, it is not risk-free, just like investments. Market volatility, changes in interest rates and slump in real estate markets can affect revenue. It is important to assess risk and investment goals before investing in REIT’s. As the Indian economy continues to grow and urbanize, demand for commercial space is expected to increase, providing a favorable environment for REIT’s to prosper.
Right investment with appropriate research and strategies can be an additional advantage to your portfolio. Want to stay updated with the latest real estate investment trends? Subscribe to our blog and never miss an insight!
