REIT: The new investment vehicle for diversifying your wealth | The Financial Express

REIT: The new investment vehicle for diversifying your wealth

Induction of REITs in India has opened a new investment avenue for retail investors to park money in a similar concept to mutual funds.

REIT: The new investment vehicle for diversifying your wealth
REITs entered the Indian market only in April, 2019 when the first REIT was listed in India.

Real Estate Investment Trust is the talk of the town and the new & futuristic concept of investing in real estate. REITs have given above average returns in many countries. The concept of real estate was initially started in the United States and it worked very well. Today REITs are the new investment asset class introduced and implemented in most of the countries across the world.

Investment in REITs is very simple to understand & enter. It follows the same concept of a mutual fund, wherein the investors can benefit by entering even with a small amount and get the benefit of diversification & professional expertise of a fund manager. The money in REITs is collected from a pool of investors & managed professionally by parking the same in long term real estate assets.

Theme-based investment strategy

REITs initially when were introduced used to practice a simple investment strategy of collecting money from a pool of investors & parking the same into any property where the fund manager would believe a good return on investment. Over the period the investment strategy has become highly specialized & more professionally managed. Now the fund manager follows a theme based approach & invests in to a specific real estate asset class to match the risk reward ratio.

REIT’s advantages to investors

Options of investing in real estate related to commercial properties such as shops, office space, etc need a large amount of investment, hence have been comparatively explored less, as not everyone can park this sizeable amount. Also, the investment entry is not that easy as one needs to procure and check on legal framework & necessary approvals in place, long-term lease & timely rentals to be tracked. Prior to introduction of REIT, the other way to park money in the real estate sector was by investing through purchase of equity stocks of listed real estate companies or through indirect channels by parking money for a return to the non-listed real estate developers. However, these investment carried a market risk & also default risk in case of indirect investments. Due to these constraints & risks, the audience who participated in these investments were very limited.

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REIT’s entry into India

The Securities and Exchange Board of India (SEBI) introduced the concept of REITs in India with an intent to provide the much-needed capital to the real estate sector and channelize the funds of retail investors into the formal system by way of implementing SEBI (REITs) Regulations, 2014 as amended from time to time.

Induction of REITs in India opened a new investment avenue for retail investors to park money in a similar concept to mutual funds, wherein one can own, operate or finance rent/income generating real estate assets such as apartment complexes, office buildings, hotels and shopping malls. REITs now are available to anyone to invest in the portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or a mutual fund or exchange-traded fund.

REITs entered the Indian market only in April, 2019 when the first REIT was listed in India. Unlike in other countries such as the US wherein private REITs and public non-listed REITs are also regulated; in India, only public REITs registered with SEBI are in place as of now.

Investment Pattern

REITs are listed and traded on stock markets just like exchange traded funds (ETFs), as a result, purchasing units on the stock market is the best way to invest. Thus, a demat account is mandatory for investing in REITs in India. Just like ETFs, the price of REITs units on stock markets changes depending on both the demand for units as well as the performance of the REIT. To encourage investors, SEBI has also reduced the minimum amount to enter as INR 10,000/- INR 15,000/- only, for investment through initial public offerings and follow-on offers.

Looking at the real estate current outlook, REITs have a bright future in India & will be one of the most popular investment asset class in the coming year.

(Dr Mohit Ramsinghani, Chief Sales Officer, Shapoorji Pallonji Real Estate)

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First published on: 07-11-2022 at 09:02 IST