Real Estate Investment Trust (REIT) is ready to make its appearance in the Indian market, after proving to be a major success in USA, Singapore, and Hong Kong. To put it simply, a REIT works like a mutual fund wherein a pool of funds is invested across various real estate projects in order to minimize risk and maximize returns. Just like mutual funds, a certified investment expert manages the large pool of investments in a REIT.
Here’s all you need to know about REITs and how they work.
What are REITS?
REITs are investment vehicles that own, operate and manage a diverse portfolio of income-generating real estate properties in order to secure regular returns. These are usually commercial properties like offices, shopping centers and hotels that generate sizeable rental income.
How do REITs work?
REITs work in a manner similar to that of mutual funds. A REIT is essentially a pool of funds from a large number of investors and these funds are directed towards rent-generating properties. The Securities and Exchange Board of India (SEBI) requires Indian REITs to be listed on exchanges and to make an initial public offer to raise money.
How can you invest in REITs?
The investment process is a flexible one, where you can invest in REITs in the primary or secondary market and exit whenever you like. However, the minimum investment amount has to be Rs. 2 lakhs. The minimum offer size of a REIT is Rs. 250 crore.
REITS in the Indian market
In the Indian market, REITs can play an instrumental role to help developers monetize their existing property—unsold and unoccupied—in a major way.
REITs as a lucrative investment option
Because of the diverse portfolio of investment, REITs can greatly minimize the risk related to property investments. The properties included in the portfolio vary in terms of location, infrastructure and industrial development in the vicinity so that you can hedge your bets.
REITS make for a very lucrative investment option. For example, if you have Rs. 2 lakhs to spare, you can invest it in a REIT instead of putting it towards buying a single property. Additionally, REITs bring in a whole new level of transparency where the valuation of the REIT will be available to the public. It is a common practice for investors to buy a second home for the purpose of rental income. REITs can prove to be a far more lucrative option for such investors.
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