What is REIT and how is it beneficial for investors?

Pavithra S
Pavithra S / 2 yrs ago /
  12

Since the last decade, the Indian Real Estate sector has been profitable for potential investors, but not without facing uncertainties. Several measures and policies have been introduced by the government to uplift the market and boost investments. REIT is one such platform initiated by the government to encourage more investments in the realty sector.

REIT

Real Estate Investment Trusts (REIT) is a provision implemented by the Congress Government in 1960. It allows all kinds of investors (even those with smaller investments) to make safe and rewarding investments. REIT allows individual investors to purchase shares in the commercial real estate platform that earn income from different kinds of properties. This portfolio has been approved by SEBI (Securities and Exchange Board of India). Just like Mutual Funds, it will aggregate the money from all investors across the country. The minimum asset size to be invested is Rs.500 crores as set by SEBI, however, the minimum issue size set by SEBI is less than Rs.250 crores. The investors can buy the stock units from either primary or secondary markets. 

Real Estate Investment Trusts are established to empower more people to invest in the Indian Real Estate Sector and boost funding in the market. With REITs in place, investors can begin with even a small of Rs.2 lakhs to secure units in exchange.

The properties included under REIT encloses apartments, office buildings, health care facilities, data centers, hotels and other infrastructures like mobile towers, timberland, energy pipelines, retail centers, and warehouses, etc. A Real Estate Investment Trust will also have to be registered through an Initial Public Offering (IPO) and REIT units have to be listed with exchanges and traded as securities accordingly.

Main Objective of REIT

To provide the dividends generated from capital gains from the sale of commercial assets to investors. The trust dissipates about 90% of income among the investors through dividends. A REIT is intended to provide safe and diversified investment opportunities with minimal risks and under professional management. Maximum returns on investments are to be ensured by REITs.

Working of a REIT

A REIT usually leases space, collects rents on properties and then distributes those incomes as the dividends to shareholders. A company has to comply with certain provisions in the Internal Revenue Code to qualify as a REIT. All REITs will have to be registered under the stock exchanges and they will be structured like trusts. Accordingly, assets of REIT will be kept under independent trustees for investors or unitholders. The trustees of REITs have some specified duties which involve fortifying compliance and adherence to all those applicable laws which protect the rights of investors.

Advantages of Investing in REIT

Investing in REIT, you can get income dividends of about 90% distributable cash at least twice a year. Transparency is ensured through showcasing the half-yearly and yearly basis valuation. Diversification is achieved through the guidelines of REIT where one will have to invest in a minimum of two projects with the asset value of about 60% in a single project. The risk is lower with at least 80% of assets being invested in completed and revenue-generated projects. The other 20% include under-construction projects, mortgage-based securities, equity shares of the listed properties and equity shares that derive a minimum of about 75% income from the government securities, money-market instruments, and other real estate activities.

While the Indian property market is getting stabilized, making investments in the real estate is wise that has great scopes of capital appreciation. If you are planning to invest in residential properties, then sign up with Sulekha.



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Nice It Will Empower Investors To Invest In Real Estate Sector if this is Implemented As Designed Fully Structured.


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