Real estate is one of the most popular investment options across age and income groups. However, with the increasing cost of properties, it is becoming difficult for people to purchase real estate from the point of view of investment.
Real Estate Investment Trusts (REITs) can be a way out here as they offer the opportunity to invest in different types of properties but at a significantly lower cost of investment. This article discusses the reasons that make REITs a smart investment in India.
What are REITs?
REITs are a type of investment trust that owns, operates, and manages real estate assets. One can buy shares in a REIT and earn a portion of the rental income generated from the underlying real estate assets.
When one invests in a REIT, one essentially buys a share of a company that owns and manages real estate assets, such as apartment buildings, shopping centres, office buildings, hotels, and warehouses. The rent that these companies collect from their properties is distributed to all investors in the form of dividends, which helps investors earn money.
They can be great for portfolio diversification
Investing in REITs provides investors with an opportunity to spread their investments across a variety of real estate assets and reduce the risk that comes with investing in a single property or asset class. REITs can also be ideal for diversifying a portfolio otherwise invested in typical asset classes like equity, debt, and cash.
They offer a low investment cost
Unlike real estate, where one requires a high investment budget, REITs are traded like shares and therefore have a low investment cost. As a result, one can start investing with relatively small amounts of money in contrast to direct real estate investments. This makes REITs ideal for most income and age groups.
They can offer a regular income
REITs are legally mandated to distribute at least 90% of their income as dividends to all shareholders. This gives investors the opportunity to earn a regular income from their REIT investment.
They provide capital appreciation
Apart from regular dividends, REITs also offer capital appreciation. Real estate assets generally increase in value over time, leading to property appreciation. When the value of a REIT’s underlying real estate assets appreciates, so does the value of a REIT’s shares. Hence, one can gain money by following the ‘buying low and selling high’ strategy.
They are very liquid
REITs are listed on stock exchanges, so investors can buy and sell their shares whenever they want. On the other hand, direct real estate investment can be relatively illiquid as it requires time to find the right buyer.
REITs are professionally managed
Not everyone has the experience and knowledge of a professional, making it hard to manage their investments. Professional real estate managers manage REITs. These professionals have expertise in managing real estate assets that investors can benefit from.
They offer exposure to prime assets
REITs invest in prime real estate assets, which typically offer high rental yields. Investing in commercial and residential assets of such high values can be next to impossible for most investors. But REITs provide a means for investors to gain exposure to these assets.
They can provide a hedge against inflation
Real estate assets are often considered an inflation hedge. Rents and property prices tend to rise with inflation. This means when the prices of goods and services rise, so does the value of the underlying real estate assets in a REIT, offering investors inflation protection.
They are regulated by SEBI
REITs are regulated by the Securities and Exchange Board of India (SEBI), which provides investors with a level of oversight and protection. SEBI ensures that REITs comply with the set regulations and provide accurate and timely information to investors. This removes the chances of financial fraud and misinformation.
Reasons for investing in REITs
Many investors are keen to make an investment in REITs and have been doing so for a while. Several reasons make REITs a smart investment in India. Some of these have been discussed below:
Conclusion
REITs are a great investment option for a range of reasons. They offer investors exposure to a diversified portfolio of real estate assets, the possibility of regular income, low investment costs, liquidity, professional management, capital appreciation, inflation protection, and exposure to prime assets, along with the safety of regulation.
Moreover, they are an excellent substitute for direct real estate investments. However, it is important to note that all investments do carry some amount of risk and so it is essential for investors to research well and select REITs after careful evaluation of their goals and risk appetite.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. 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 /disown 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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