Come Take a Bite of the Realty Pie
Interested to invest in the growing real estate sector, but unsure due to rising costs? Do not worry.
REIT may be a wonder plan here. Even if you lack required capital to invest in a property, Real Estate Investment Trust (REIT) would allow you to enter the sector without actually owning a property.
So what is REIT?
A REIT is a corporation or trust that owns and operates income-generating (rental assets) real estate. These may typically include commercial properties such as office buildings, shopping malls, hotels and more. Unlike real estate developers, a REIT does not construct properties to resell them. Instead, the trust buys and manages large-scale properties mainly to operate them as part of its investment portfolio. This portfolio is then publicly traded at major exchanges just like the mutual funds.
Thus, REITs allow small investors and institutions to invest in these portfolios of large-scale properties similar to investing in any other industry, through the purchase of stocks. On the valuation front, they do not necessarily increase and decrease along with the broader market. Instead, they depend on the performance of the individual properties in the portfolio.
Some of the major advantages of investing in REIT assets are:
a) Easy and secure investment in the real estate sector.
b) Highly liquid, meaning entry and exit to real estate is relatively simpler.
c) Hassle free investment in commercial properties as well.
d) Yields in the form of dividends at regular intervals.
REITs in India
REITs are a new introduction to the Indian markets. After a prolonged wait, the Securities and Exchange Board of India (SEBI) finally cleared guidelines for this class of asset investment. As per estimates, REITs are expected to enable infusion of $20 billion (approx. Rs 126,000 crore) in India’s real estate sector by 2020.
Undoubtedly, REITs are being touted as game changer to the country’s real estate sector. They are expected to bring in more transparency, accountability and confidence in the sector, besides opening new avenues of funding for the cash-starved property developers.
However, industry experts believe that certain taxation and regulatory aspects (such as foreign investments, stamp duty, taxation for offshore investors) still need amendments, which would help draw greater investments from both domestic and overseas investors.
India’s largest realty firm DLF has recently announced plans to launch two REITs thereby raising an estimated Rs 6,000 crore, which is then likely to be used to fund its office and retail projects. Other developers like Parsvnath and Bangalore-based Embassy Office Parks are also looking at similar options.
Later part of FY2016 is when REITs are expected to be implemented and listed on the Indian stock market. Now it remains to be seen how does the Indian market respond to this new class of asset investment.