The Buyt Desk
Real Estate Investment Trust known as REIT is a way to invest in real estate without actually buying a property. REIT’s enable the investor to earn assured rental returns without having to buy a property. You will invest in real estate but you don’t buy an immovable asset like a house, shop or land. This investment does not require a huge amount, no maintenance cost or any worry about project delivery. Till now, investing in real estate meant that there should be a huge amount in the pocket or opt for a loan. But REITs are making it possible to invest in real estate with just Rs.5000.
Real Estate Vs REIT?
What happens when you decide to buy a property? You search for the right property which is best suited to your budget. Then you figure out your finances for not only buying the property but also for making that house livable you will incur some expense on the interior. If you already have a house and you are buying for renting it out then too you will have to maintain the property. But in Reits you neither buy a property nor maintain it. In fact, a team of professionals take care of the property and you simply earn a return.
How does REIT work?
Now the big question is how does REIT work? REITs are companies that own, operate or finance income-producing real estate. It is like a mutual fund wherein a company announces a REIT and it takes money from people and invests it in a property that rents out. Out of this earning, you will get a return in proportion to your investment. These companies buy ready rent-yielding property whose maintenance is taken care of by the owners of the property. You just invest in a unit of that ready property.
There are two types of REITs. First – REITs which are listed in the stock market. You can buy and sell them like stocks. One can also start investing by buying a share in a listed REIT. Another way to invest in REIT is through mutual funds. These are funds that invest in global REITs through their funds. That is, they earn from your money by investing in properties located abroad. Like a mutual fund, you buy its units with a minimum investment of Rs 5000.
REITs In India
As of now, there are three listed REITs in India – Embassy Office Park, Brookefield India, and Mindspace Business Park. The Returns of Listed REITs have been as follows-
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Embassy Office Parks 21% (from April 2019)
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Brookfield India Real Estate 10% (from February 2021)
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Mindspace Business REIT 8% (from August 2020)
There are three Funds of Funds- Kotak International, Mahindra Manulife, and PGIM India Global Select Real Estate. As far as the REIT Fund of Funds is concerned. The oldest fund is Kotak International REIT FOF which gives market returns by investing in REITs of Hong Kong, Singapore, Japan, and Australia.
The Securities Exchange Board of India (SEBI) is the regulator of REITs. Under its guidelines, it is mandatory to invest 80 percent of the REIT in ready-to-move and rent-paying properties. Listed REITs have to pay 90% of their earnings to the investor. Investors will get this in the form of dividends and interest. All the existing REITs are investing in commercial properties only. Recently RBI has allowed Foreign Portfolio Investors i.e.FPIs have also been allowed to invest in REIT.
Expert’s View
Personal Finance experts suggest that REIT gives an opportunity to include real estate in its portfolio at a low cost. In an investment portfolio, an exposure of around 5 % to REIT is sufficient. Those investing in listed REITs get more benefits in terms of tax and earnings. The interest and dividend paid on a quarterly basis in the listed REITs are tax-free. But if you are apprehensive about the capital market then it is better to invest in the Global REIT Fund of Funds. REIT FoFs also provides international exposure to your portfolio.
