Real Estate Investment Trusts (REITs)


Date: 5-March,2019Last Updated: 28-June,2021
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REIT is one of the popular investing phenomenons to have captured India's attention. REIT has taken real estate investing to a whole new level as it does not burden the investor with the usual property purchasing parameters, paperwork or the perils of the pestering authorities. But to those who are still unfamiliar with REIT, here's an overview-

What is a Real Estate Investment Trusts?

REIT or Real Estate Investment Trusts are companies, corporations or any other registered entities that own and operate on land or property based assets.

An individual can invest in a REIT and it produces income from the land or the property which it returns to the investor as dividends. It is also called Real Estate Stocks.

Derived from the concept of Mutual Funds, REITs provide all investors with an opportunity to possess valuable real estate, attract dividend-based income and total returns.

What is the objective of Real Estate Investment Trusts?

REITs were formed basically to incorporate the common man into real estate than the usual mainstream home buying or rental industry. Usually, Real Estate Investing involved big players and posh properties which gained greater returns in the market which then remained exclusive within an elite circle, whereas the middle and lower class invest in longer-term assets which got them lesser returns.

However, Real estate investing has changed the game and revolutionized the market by involving the general population. REIT has also hoisted up the Real Estate sector which was almost at the fringe of a big collapse.

How to Invest in REIT?

In the same way that an individual purchases company stock or invests through a mutual fund to invest in an industry, investors can purchase the stocks of a REIT. These stockholders then earn a share of the income from the real estate investment without the need to personally buy, manage or finance the property.

But...

How is a REIT more attractive than an actual property purchase?

The first and foremost factor which trumps over an actual property purchase would be the low capital investment required to acquire a REIT. As REIT works in the same model as an equity share or a mutual fund, hence there's no need of intensive paperwork, regulations, accumulation of funds, it's easier to acquire than a proper real estate unit.

Buying a house or a property is indeed seen as one of the best long term investments, secure shelter and even a status symbol but the major hindrance of property as an asset is its Liquidity factor. REITs will be listed in the stock exchange and its rates and fluctuations will be Transparent as every detail can be monitored and assessed by the investors.

Because of the relatively lesser prices, REITs will be more attractive to small-scale investors and mid-level investors. As of now, REITs are tax-free which will help in the overall improvement of the investment's popularity within the Indian circles.

The Investor's Angle

Fortunately, REITs are an easily understandable model with a straightforward approach. Currently, REIT Real Estate Investing is considered as a safe investment with high returns. Most of the REITs generate income from their real estate by leasing space and collecting rents which are then paid out to the shareholders in the form of dividends. Even though the rule is that all REITs must pass on at least 90% of their taxable income to their shareholders, most of them payout 100%. Most REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.

From the perspective of a common investor, REITs are real estate working for you. Socially put, REITs have a diverse portfolio of properties that they own, finance and operate.

They are the major stakeholders in critical real estate.

There are different types of REITS, which are listed as follows:

  • Equity REITs – The majority of the REITs are publicly traded equity REITs owning or operating income-producing real estate. Equity REITs are commonly referred to as REITs.
  • Mortgage REITs – Mortgage REITs (MREIT) provide finance for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest earned on these investments.
  • Public Non-listed REITs – PNLRs are registered with the SEC but do not trade on national stock exchanges.
  • Private REITs – Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.

REITs in India.

Embassy REIT debuted as first Real Estate Investment Trust in India and has already been listed in both NSE and BSE. It is being operated under the brand name " Embassy Office Parks". The brand offers premium office spaces in some of India's metropolitan cities and many MNC's such as IBM, Cerner, Cognizant are utilizing their commercial spaces.

Though the Government had levied certain restrictions on the investment capital limit as a precaution since it was a new venture. Embassy REIT had remained steady throughout and is expected to be overvalued at the end of the term as it has achieved the legacy of being the first REIT in India.

Real Estate Investing is considered one of the best investment options all over the world as it combines both the best features of long term investment( Real Estate) as well as short term investments (Shares & Equities). It will soon become a prominent addition to the diversification of investment portfolio and has the potential to become more popular than mutual funds, as it's the base is one of the most trusted asset capitals in the world. As it is relatively new in India, it is wise to consider REIT as a relevant investment option as it's expected to revolutionize the entire sector.

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