The real estate market in India has been worthwhile for some shrewd and expert investors over the last few years, but it hasn’t been so without being accompanied by uncertainties. With the introduction of REIT (Real Estate Investment Trusts) in India will widen the prospect for all kinds of investors – even the ones will a limited budget in order to make some safe investments in the Indian real estate segment.
How do REITs work?
Over the past two to three years, there has been a considerable change in the Indian real estate market with a growing number of investors and home buyers to invest in properties for the long term. Under REITs, investors can start with as small a sum as Rs. 2 lakh to secure in exchange. REIT, as permitted by the Securities and Exchange Board of India (SEBI) would pool money from different investors from all around the country. The eventual goal of sourcing funds from REIT is to invest in commercial properties to generate income. An REIT would somewhat function like a mutual fund. SEBI needs Indian REITRs to be listed on the respective exchanges and to make an initial public offer to raise funds. Similar to Mutual Funds, REITs are further divided into three-tier structures – the sponsor who sets up the REIT, the fund management company that looks into the selection and operation of properties, and finally the trustee who is responsible for managing and ensuring that the money is in the interest of unit-holders.
Key Objectives of REITs
The only role of REITs is to deliver benefits to the investors with dividends that are generated from capital gains accruing from the sale of those commercial assets. The trust ensures distributing 90% of the income generated among its investors through dividends. Also due to an immense growth in the real estate segment, the returns to be expected from REITs are massive and at the same time very competitive. Besides this, since REITs provide stable income and are less volatile in nature, they’re considered to be amongst the top investment options for retired personals. Some of the significant advantages are listed below –
- Transparency – REITs disclose complete valuation on annual basis and also updates it on semi-annual basis
- Tax efficiency – Dividends received from REITs are non-taxable at corporate level, which also means that the other investments which require tax to be paid as high as 35% , REITs would save that 35% of tax at the corporate level
- Income Dividends – Benefit through the distributable cash of up to 90% at least twice a year
- Comparatively lower risk involved – Out of the total assets, 80% would be invested into revenue generating and completed projects while the other 20% would be invested in under-construction projects, mortgage based securities or equity shares of the listed properties.
Bottom-line
To remember an important point, REITs are just investment instruments and not means of acquiring a physical property, which is on the wish list of every Indian. For most investors, investing in REIT is lie investing in long-term profit. At the same time, having a profitableproperty is no less than having some gold that can source out some worthwhile profits.