What are REITs, anyway?
REITs—Real Estate Investment Trusts—are slowly but surely becoming the Indian preference for an investment in India's booming property market without the hassle of buying or owning actual properties.
Think of a REIT as a mutual fund, but instead of stocks or bonds, it puts its money into income-generating property like office buildings, malls, or hotels. By buying units of a REIT, you're essentially buying a small chunk of these properties. Rent from the tenants is distributed in the form of dividends to the shareholders, thereby giving an assured passive return.
REITs are traded on stock exchanges, so you can sell or buy them just as you would a share. This brings real estate—historically a relatively illiquid asset class—well within the reach of and convenient for retail investors.
Why REITs are gaining traction now
One of the biggest reasons why REITs have become more popular is that they can generate regular income. With interest rates having stabilized and offices having seen a strong comeback post-Covid, REITs are offering yields of roughly 6-7.5% annually. For those fixed deposit yield-hungry investors who do not wish to gamble on equity market returns, that's an attractive middle-ground option.
Transparency is yet another factor. SEBI regulations ensure that Indian REITs maintain high standards of disclosure, distribute at least 90% of their income to investors, and are backed by quality assets. They have thus been a dependable option for investors seeking stability as well as stable returns.
The entry of big players like Embassy, Mindspace, and Brookfield REIT has also lent legitimacy to this market. Institutional players also started gaining confidence, further boosting retail participation.
REITs vs. conventional real estate
Buying a flat or commercial building takes a lot of initial outlay, paperwork, maintenance, and dealing with tenants. But with REITs, you can put money into real estate for as little as ₹10,000, without all the operational headache. And since they are listed exchanges, you can easily sell your investment when needed—a feature that physical real estate does not offer.
The road ahead
As the commercial real estate market in India has grown, REITs are sure to be a key driver in making ownership in the real estate sector available to the masses. REITs provide the best of both worlds—guaranteed returns on property and the stock market's liquidity.
FAQs
1. Are REITs suitable for first-time investors?
Yes, REITs are ideal for start-ups that want exposure to the real estate market without actually buying property.
2. Do REITs guarantee fixed returns?
No, returns are on the basis of rental yield, occupancy, and performance in the market but are fairly stable.
3. How is the tax treatment of REIT returns in India?
REIT dividends are tax-free if the REIT has not paid corporate tax on its income, while capital gains are taxed based on your holding period.
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