Investment in the real estate sector is another way to deploy your money and aim for better returns. People invest by buying space in residential or commercial real estate projects. A considerably new option in India, are the Real Estate Investment Trusts (REITs).
REITs are liquid, which allow investors to invest and trade in small amounts, and represent ownership in a real estate vehicle while leaving the management to professionals.
There was a long-standing demand from the real estate sector in India for the introduction of REITs.
REITs were introduced in India a few years ago to attract investment in the real estate sector by monetising rent-yielding assets.
Embassy Office Parks was the first REIT in India listed in 2019.
At present, there are other two listed REITs, Mindspace Business Parks REIT and Brookfield India Real Estate Trust – on Indian stock exchanges and all these are leased office assets.
According to NSE, the REIT is designed as a tiered structure with Sponsor setting up the REIT which in turn invests into the eligible infrastructure/real estate projects either directly or via special purpose vehicles (SPVs).
When a real estate company decides to form a Real Estate Investment Trust, it becomes the Sponsor for the REIT and appoints a Trustee.
A REIT is a corporation, trust or association that owns and manages a portfolio of real estate properties and/or mortgages.
REIT is set up as a Trust under the Indian Trusts Act, 1982 and registered with the Securities and Exchange Board of India (SEBI).
How does REIT work?
A pool of real estate assets, A REIT can generate regular income and is held like a mutual fund. For example, a mutual fund pools money from investors and then invests the same in the stock market, the REIT collects money from retail and institutional investors and invests in real estate assets.
Usually, these are commercial real estate assets like office spaces, business parks and shopping malls, which can generate regular rental income.
Without actually having to go out and buy, the stockholders of a REIT earn a share of the income produced through real estate investment.
Investors can earn regular income in the form of a dividend, which is paid from the rental income the company earns.
Types of REITs In India
Equity: In this, REIT owns all the income-generating properties through rents. They are sole owners and lease out properties to various corporations or people. The income earned is distributed to the investors.
Mortgage: They lend money to real estate players. They do not earn income from rent but through EMI or mortgage payments from the builders.
Hybrid: It has a combination of both owned properties and mortgage-based properties and earn regular income through rent and interest. It helps investors to diversify and earn through both options.
Publicly Traded: Investors can buy and sell shares of this REIT through a stock exchange.
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