Real estate investment trusts (REIT) are a new asset class in India that can generate regular income for investors. This is a significant option because it allows investors to make a profit without having to invest directly.

A REIT is a company that primarily owns and operates income-producing real estate like showrooms, shopping centres, offices, warehouses and hotels.

Globally, there are 40 REITs, which manage more than $ 2 trillion of assets and account for a fifth of all property market transactions. It offers portfolio diversification and a stable, reliable dividend income. REITs have been around for decades in developed countries. They have shown excellent long-term risk-adjusted returns and the liquidity of public money. REIT in India will allow all investors to invest in large-scale income-producing, professionally managed companies that own real estate

SEBI Regulates REIT’s

The Securities and Exchange Board of India is the regulator of this asset class. Investors need not worry about whether their investments will be authentic and return on investment. In simple terms, REIT is nothing but trust. It has certain responsibilities such as the trustee (registered with SEBI), manager, sponsor and principal valuer. Through an initial offering, the REIT is registered and funds are raised from investors. The regulator has set a minimum issue size at 250 crores. Additionally, the regulator has stipulated that assets must not exceed 500 million.

India’s first RIET (Embassy Office Parks REIT) was launched on March 18, 2019. Indian REIT shares began trading in the Bombay Stock Exchange on April 1 2019.

REIT invests directly in commercial real estate assets or through special purpose vehicles. These introductory schemes include closed-ended mutual funds and close-ended realty investment schemes. They will invest in property to provide returns for unitholders. These returns will primarily come from rental income and capital gains from real property.

REITs must pay at least 90% of Net Profit (PAT) to shareholders. REITs in India can only keep 10% of PAT (Profit after Tax).  they are a comparison with shares and mutual funds.

REIT’s provide income to their investors in two ways.

Dividend: REITs pay dividends to their shareholders.

Capital appreciation: Since REIT stocks are listed in NSE and BSE, the price appreciation of their shares will also bring in money.

REIT can raise funds from domestic and foreign investors.  If you are between 45-50 years old and looking for an income stream REIT is a favourable option.  REIT is stable, inflation-hedged, and tax-friendly. REIT is often a great option for retirement savings. 

Every investor can benefit from having at least some real property as part of their portfolio. REITs offer an alternative to owning land or other forms of real estate

REITs are stable

REIT is a safe investment option when it matches your asset allocation. Sebi regulates and monitors it. However, it is important to understand the investment aspects such as volatility, returns and benchmark. A REIT will have multiple holdings, unlike an ownership inland, a residential or commercial building, to ensure they pay regular dividends from income-generating properties. This reduces investor risk and provides a minimal return. This does not mean that the NAV is stable.

The REIT is exempt from tax, but the REIT’s tenants will be subject to taxes. Investors will also have to pay tax on dividends and capital gains from REIT investments. In effect, REITs will be competing with traditional real estate while also being competitive with ultra-safe investments such as PPF or debt funds on returns.

REITs favour liquidity over real estate investments in commercial or residential properties, where liquidity can pose problems. This could be a favourable option for those who are just starting in business or service and cannot make large investments in individual real property. So over time, when you make optimal returns then you can plan on buying your own real estate. This is similar to investing in ETFs (Exchange-traded funds) and gold funds that help you accumulate gold for consumption over the long term.