What is a REIT?
REIT is an acronym for Real Investment Trust. It is an investment vehicle which invests in properties that generate regular income. Its structure is like that of a company and is also registered as such. Investors hold shares of the company and the company in turns uses the money to purchase or finance properties.
How is a REIT different than other finance company?
REIT is specially designed and conceptualized in a way to invest only in income generating properties. Most of such properties are commercial in nature.
Why do REITs invest mostly in commercial real estate?
Commercial properties offer better rental yields. Since the objective of a REIT is to focus on regular income from properties, commercial properties are a better bet. They are also more stable in nature, especially with long lease arrangements.
What’s the scope of REITs in India?
In the recent budget, REITs have been exempted from dividend distribution tax. That makes REITs a suitable option for large funds to invest in the realty sector. The Indian real estate scenario is not very transparent and well regulated. But the regulation and norms for REITs are very clear. That will make it an ideal option for many investors to gain from real estate.
How does a company or a corporation qualify as a REIT in India?
A company can be classified as a REIT if they follow these norms
- The dividend payout from the company should be ninety percent of the total income post tax.
- It should be registered as a company as per Indian laws.
- It is mandatory for REITs to list on stock exchanges.
- More than eighty percent of the value of the REIT has to be invested into real estate projects.
- Follow other guidelines as framed by Stock Exchange Board of India (SEBI)
REITs are mostly preferred by international or HNI investors. Is that correct?
No, that is not the right assumption. REITs are listed on stock markets. They can be easily sold and bought. That makes it attractive for a small invest who otherwise would have found difficult to invest in high-ticket real estate deals. The approximate ticket size to invest would be around two lakh rupees. As easy it is to enter the REIT, it’s simple to exit as well.
Is REIT a popular way of investing in International Property Markets?
Yes. Countries like United States, Malaysia, Canada, Japan and even next door neighbor Pakistan has a robust REIT market with good ROIs.
