Real Estate Investment Trust REIT Types, Advantages & Limitations

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Furthermore, investors can also invest in internation realestate through international REIT fund of funds. Similar to stocks, the REIT prices also flucatute based on the demand, supply and performance of the REIT. To invest in REITs through stock exchange investors must have a Demat Account. Investment in real estate properties can be very capital intensive. However, shares of REITs are comparatively affordable, as investors can purchase few units at a time without worrying about large capital outflows.

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SEBI Allows Investments in International Funds 2023-24

It invest in properties like office spaces, warehouses, malls, etc., where the investments can generate rental income. Through REITs, investors can earn regular income in the form of a dividend. This dividend is paid from the rental income the company earns.

Investors benefit from REITs because they can diversify their portfolio of investments and get consistent dividend payments. The goal of any investment is to generate wealth for investors and/or provide regular income. Investors can receive periodic dividends and/or interest payouts that provide regular income and at the same time, the sale of REIT units on stock markets can provide Capital Gains to the investor. At least 80% of investments made by a REIT need to be in commercial properties that can be rented out to generate income. The remaining assets of the trust (up to the 20% limit) can be held in the form of stocks, bonds, cash, or under-construction commercial property. Notably, REIT as an investment option tends to resemble mutual funds, the only difference being that REIT holds properties instead of bonds or stock options.

How Can You Invest in Private REITs?

REITs are generally publicly traded, meaning they are sold on a stock exchange, and offer investors a liquid stake in real estate. REITs typically own and manage a variety of real estate assets, including office buildings, apartment complexes, shopping centers, warehouses, hotels, and other types of real estate. REITs may also invest in mortgages or provide financing to developers.

You are advised to consult an investment advisor in case you would like to undertake financial planning and / or investment advice for meeting your investment requirements. In a fast-moving set-up, returns on commercial real estate could range between 8% and 10% per annum but can go as high as 15% in case of Grade-A office space. However, REIT yields in India have so far been close to the yields on safe bonds and post office schemes. Only after the REIT market in India matures, can one expect 10% yield here, opine experts. InvITs and REITs are attractive to retail investors, HNIs and also retired individuals who are looking for a steady source of income. Moreover, REITs are obligated to distribute the majority of their revenues to investors, and they can serve as a reliable source of steady income, similar to debt funds.

• This happens because of the supply & demand of the traded units.
• Premium In the case of Mutual Funds, the risks minimize over a long period, but REIT investments come with no such guarantee.
• They are not the owners, but get EMIs against the property from the owners and builders.

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Taxation of Income Distributed by Real Estate Investment Trust:

Vacancy rate is the percentage of built space in the markets that are currently unoccupied or are available for rent. Including REITs in one’s retirement portfolio tends to prove beneficial for investments in several ways. The following pointers help gain valuable insight into the same. Accrue a minimum 75% of gross income from mortgage interest or rents. We will keep records of our performance, presentations, and past earnings releases on our website so you may access them at any time. We will, through our website and selectively through other media channels, disseminate information that is relevant to our financial and operating performance.

It is with this purpose that the REIT’s function in India to make industry-backed financing more structured. A Real Estate Investment Trust is an entity that is created with the main purpose of channelising the funds that could be invested in operational functioning or ownership of the real estate to further generate income for the investors. All of them specialize in office space and have their primary income by rental out office space to corporate entities. In addition, there is an international fund of fund by Kotak AMC that invests in international funds having exposure to REITs.

What are the risks involved?

A charting for beginners is a company that owns, operates, or finances income-producing real estate. Apartment complexes, data centers, hotels, healthcare facilities, infrastructure , office buildings, retail centers, self-storage, and warehouses are examples of properties under a REIT portfolio. Sebi’s regulation to pay 90% or more dividend to shareholders, invokes investors to purchase REITs. Because of this regulation, management can not lower the dividend but can pay more, which assures the dividend payment. Because in case of financial needs, it is easier to liquidate REITs than a property, which generally takes time to find interested participants, and it takes time to complete a transaction.

Besides publicly-traded REITs, investors can also buy shares in REIT mutual funds or exchange-traded funds. In many ways, REITs or Real Estate Investment Trusts are similar to mutual funds. Money is pooled from investors and invested in revenue-generating commercial properties. The income generated from the properties is then distributed among investors. Like mutual funds, you can purchase units of the REIT you want to invest in. The risk of volatility is also much less in REITs when compared to the stock market, mutual funds and gold, as they are mandated to keep 80% of their listings from rent-generating assets.

Investments & Types

Also, these companies are required to distribute as much as 90% of their taxable earnings to their shareholders, serving as an avenue to generate steady income. Also known as mREITs, it is mostly involved with lending money to proprietors and extending mortgage facilities. Individuals investing in REIT get the benefit of steady and substantial dividend income and over the long term, it also allows steady capital appreciation. The first REIT started in the US in the 1960s, and was designed to allow small investors to participate in the benefits of owning commercial real estate. Although they are SEC-registered REITs, they do not trade on regional stock exchanges.

With the launch of the first REITs IPO in India by the Embassy Group in partnership with Blackstone of the US, the focus is back on REITs as an investment product. SEBI permitted REITs in 2014 but there were a lot of procedural and tax related grey areas which delayed the actual launch of REITs in India. • Must hold minimum 15% of total InvIT with a lock in period of 3 years. In comparison to its competitors, the cost of borrowing is relatively expensive at 6.76%. The post-tax yield offered by Mindspace is higher (90% of NDCF).

On an upward rate cycle, their cost of borrowing increases as they have to raise debt at a higher rate. Mindspace REIT offers the highest tax-free distribution (92%) compared to others. The cost of borrowing is relatively high at 7.45% when compared to its peers.