Today’s investment shapes tomorrow’s revenue. Although there are various investment options available, like stocks, bonds, etc can provide you finest returns, real estate investment still brings the best returns to the table. When it comes to Real estate, Real Estate Investment Trusts (REITs) step in as the best investment options in India that offer world class returns.
Putting your investment in REITs is the ready road to walk in the world of real estate investment without putting your funds into purchasing real estate property or going through property buying hassles.
Real estate leads to economic growth. Reports estimates that the real estate market is estimated to fill in nearly 13% of the country’s GDP by 2025.
REITs have open gates for impressive opportunities for investors to take on and make most of the chances to strengthen their investment portfolios.
Here, we will cover everything you need to know about REITs.
Table of Contents
What are Real Estate Investment Trusts (REITs)?
A real estate investment trust is a business entity that deals with investment and managing income-producing real estate assets with the end goal of generating revenue. On top of mortgages, these trusts take the responsibility of managing real estate portfolios that carry high values. For example, renting out properties and collecting rent. Upon collection of the rent, the earnings are distributed to all shareholders as dividends or income.
With a REIT, investors can acquire high-quality real estate at excellent value while earning dividends to increase their capital over time. As a result, you can park your excess funds and benefit from this investment, whether you are a small or large investor.
Types of REITs in India
Several types of Real estate investment trusts are available to investors to make the most of returns in every aspect. Below is the list of various types of REITs to maximize your investment:
Office REITs
Office REITs are among the dominating types of real estate investment trusts, which are certainly designed for investing in office space. With this type of REIT, you can generate revenue through the rent it gets from leased office space. This is among the most popular and preferred real estate investment options in India.
Retail REITs
Retail REITs bring together investment in commercial retail spaces, which range from malls and standalone retail stores. The investors get the chance to generate income from the rent of the retail spaces.
Residential REITs
Residential Real Estate Investment Trusts follows through the investment in the residential real estate market, which includes apartments and complexes. With Residential REITs, you can generate impressive revenue with rental income.
Healthcare REITs
Healthcare REITs may be undervalued but hold enough room in the real estate investment trust. They are basically for investors who own and run healthcare facilities like hospitals, clinics, and diagnostic centres. Healthcare facilities generate profits, which are the main source of income for these trusts.
Mortgage REITs
Mortgage Real estate investment trusts (REITs) are a subset of REITs that prioritize real estate finance over actual property ownership. mREITs invest in mortgages and mortgage-backed securities (MBS) as opposed to purchasing and managing real estate.
What are the REITs Guidelines?
REITs must conform to specific regulations in the SEBI, like claiming pay for land creation as long as possible and paying investors a reasonable returns. The following requirements must be met to qualify as a REIT:
- Anyhow, 75% of the total assets should be put into land or real estate.
- Obtain 75% of its gross income from rent on genuine properties, interest on mortgage loans, or rental income generated by real estate
- Provide an organization with a way to assess its performance.
- Trustees or a board of directors should oversee it.
- In the first year of its existence, it must have 100 investors.
- Have approximately half of its offers held by no more than five people during the last half of the assessment period
Things to Consider While investing in REITs in India?
Investing in REITs in India is not the biggest hassle to tackle, provided you take all the right steps at the right time. Investors must have a Demat account with a brokerage firm, its depends on the investor whether they want to go with full service broker or a discount broker.
Considerations for KYC requirements for REITs investment in India
Here are some of the top KYC documents requirements every investors need to consider to take on Real Estate Trust Investment:
- Aadhaar card
- PAN card
These two KYC documents are crucial to facilitate financial transactions.
How REITs provide investors with returns?
There are three top ways through which REIT offers investors to generate revenue. Below is the list of three crucial ways:
Interest
Rent received from tenants of the Special Purpose Vehicle (SPV) and financial holdings of the REIT are the income sources for these investors.
Dividend
It is mandatory for the trust to distribute a portion of the income from its real estate holdings as dividend income to investors quarterly, half-yearly, or annually.
Capital Gains
REIT units can be sold on recognized stock exchanges for a profit, generating capital gains for investors. It’s like making money from a mutual fund’s increased net asset value.
Is it beneficial to invest in REITs?
For investors planning to invest in the real estate market without buying property, REITs are the ideal choice as they put across some impressive opportunities to make the most of the real estate market. Here are some of the promising advantages of investing in REITs.
Low capital requirement
It is prohibitively expensive to buy quality real estate in India. Buying and operating a quality property and delivering an adequate yield is not feasible for a small investor. Since REITs are relatively cheap, investors can invest in income-generating real estate.
Viable for small investors
Direct investments in real estate have several drawbacks, such as dealing with the nation’s powerful builders’ lobby. An investor who is only starting has difficulty organizing proper due diligence before making an investment. Investing in REITs eliminates the need to work with developers.
Transparency
Since REITs trade on exchanges, it is easy to determine their price. It is also possible to buy and sell REIT units without experiencing any difficulties.
Conclusion
Real Estate Investment trusts (REITs) have an impressive future and are set to bring great returns to investors. India investors are completely driven toward REIT investment due to its exposure to helping investors generate significant revenue. Before the investment opportunities slip from your hand, take your chance on REITs.
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Also, check out our recent post on: “What Is The Difference Between Equity And Debt Funds?“
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