When an individual builds an investment portfolio, every advisor worth their salt will suggest putting the money in various assets to spread the risk and ensure higher returns.
One such popular investment in India is real estate due to its hedge against inflation and significant capital appreciation. But it also has its own challenges – no geographical diversification, considerable investment outflow, and limited liquidity.
These real estate investment challenges can be overcome by investing in Real Estate Investment Trusts in India (REITs).
What are REITs in India?
The Real Estate Investment Trusts in India manage and/or own immovable assets – either the properties or their mortgages –for a steady source of income as leases and rents, along with capital appreciation.
Like units in mutual funds, REIT investors can purchase units and invest in a portfolio of diverse, income-producing properties. The REITs pool the investors’ money in the owned/managed real estate properties and distribute the income among the investors proportional to the units owned.
REITs can be traded on the exchange as per the REIT share price once they are listed. REIT investing allows higher diversification, ensures lower risk, and has the potential for better returns. As part of an investment portfolio, the capital appreciation and dividend income from REIT real estate create a perfect balance against stock market volatility.
How to Invest in REITs in India?
REITs are listed and traded on the stock exchange. Therefore, a Demat account is needed for REIT investing.
REITs investment in India can be made through:
Direct stocks:
Investing through the stocks of the listed REITs is a direct way of investing in them.
Exchange-Traded Funds or ETFs:
To benefit from the indirect ownership of the properties and the diversification, invest in REITs as ETFs.
Mutual funds:
To diversify your investments, invest in a REIT through mutual funds via a mutual fund company.
As per vide notification dated 30th July 2021, the Securities and Exchange Board of India (SEBI) changed the minimum investment requirement of ₹50,000 worth of units. Additionally, the minimum lot size requirement of 100 units of REIT funds in India was brought down to 1 unit. Accordingly, if you are investing directly through the stock market, there is no minimum investment requirement. However, for investing through Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs), the minimum investment requirement is between ₹10,000-₹15,000.
Conclusion
With more and more investors looking to diversify their investments in real estate, REITs serve as the perfect avenue for a diversified and secure investment. However, just like any investment, REITs also require detailed research and due diligence before investing.
FAQs
What are the listed REITs in India?
As of 31st March 2021, India has 4 registered REITs. Of these, only 3 are listed, which are:
- Mindspace Business Park REITs
- Brookfield India Real Estate Trust
- Embassy Office Parks REITs
What are the benefits of REIT investment in India?
- Cheaper alternative to property transactions
- Easy entry and exit from real estate investments
- Automatic price determination system
- Property and geographical diversification
- Less risky than a direct investment in real estate
- Higher liquidity than direct property investments
What are some things to check before you invest in REITs?
- Asset portfolio of the REIT or the Special Purpose Vehicle (SPV)
- Past performance of the stocks
- Historical profits of the REIT
- Occupancy Ratio of the properties
- Sectoral diversification of the properties and tenant quality
- Weighted Average Lease Expiry
- Geographical diversification of properties
- Yield from dividends
Disclaimer: This article is based on the information publicly available for general use. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.
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