Invest in Real Estate Investment Trusts in India

In 2019, REITs were introduced in India, and have gained popularity since its inception because it offers a great combination of capital appreciation and steady income. Real Estate Investment Trusts (REITs) are now emerging as a transformative investment vehicle, that allows investors to access the Real Estate Market without having a significant amount of capital. But before investing in REIT, you must know the type of REIT, its structure, benefits, and essentials of the investment process.

Invest in Real Estate Investment Trusts

What are REITs?

REITs are those companies that Own, Operate and financially generate Real Estate, in residential, commercial and industrial sectors. These REITs pool money/investments from multiple investors and then purchase properties. They manage property and from the income they distribute a significant amount of shares to the investors as dividend income. These REITs have been preferred investment options across the globe for decades, and gaining traction in India now.

Type of REITs

• Equity REITs: Equity REITs own and manage income-generating properties, like malls, residential complexes and SCO buildings. The main source of income for investors here is rental income and property value appreciation.
• Mortgage REITs: They invest in mortgage-backed securities and earn through interest payments. Relatively Mortgage REITs are less popular in India.
• Hybrid REITs: As the name suggests, this is a mixture of both Equity REITs and Mortgage REITs and offers diversification of your investment by paying through both rental income and interest payments.

Advantages of Investing in REITs

• Regular Income: The main advantage of investing in REITs is ensuring a steady income stream. According to the Indian Regulation Mandate, REITs distribute their 90% of profit to the investors.
• Affordability: You can access REITs by investing as little as Rs.10,000 – Rs.15,000, and makes accessible for everyone.
• Diversification: As we discussed, these REITs invest in various locations and sectors, this not only mitigates the risk but diversifies our portfolio as well.
• Liquidity: Because these REITs are also traded on stock exchanges, hence offer higher liquidity than normal real estate investing.
• Professional Management: The experts who manage the properties under these REITs are highly experienced professionals, who ensure the most efficient operations and maintenance
• Tax Benefits: You know dividend income is exempt from taxation as well and doesn’t opt for the concessional tax regime.

Performance of REITs in India

As of today, we have only 3 listed Real Estate Investment Trusts (REITs) in India:

• Embassy Office Parks REIT
• Mindspace Business Parks REIT
• Brookfield India REIT

These 3 REITs together manage more than 100 million sq.ft. of Grade A Office Space in Delhi-NCR, Mumbai and Bengaluru. The first REIT in India is Embassy Office Parks REIT offering 6-8% of annual dividend yields consistently since its inception in 2019.

The demand for organized Real Estate Investments and the increase of office absorption in India is supporting these REITs immensely and that’s why a report by Knight Frank says, the Indian REIT Market is going to hit the USD 20 Billion mark easily by 2030.

How to Invest in REITs

• Understand your Financial Goals: The first thing to consider before investing in REITs is you must know your financial goal, whether you want a steady income, or you want to diversify your portfolio or you want long-term financial growth.
• Choose your REITS: After identifying your goal, then you need to select the right REIT for you. I mean, you want to go with listed REITs that trade on stock exchanges and give you more liquidity and transparency or you want to choose unlisted REITs, who caters mainly for institutional investors and give less liquidity but offer higher returns.
• Demat Account Opening: To invest in REITs, you must have a demat and trading account, especially in listed REITs.
• Analyze the performance of REIT: Before investing, always check the historical returns, net asset value (NAV) and dividend yield. Not to forget the occupancy rate, profile of the tenant and the diversification of the REIT portfolio.
• Place your investment: As soon as you complete your research and analysis just place your investment in REITs through the stock exchanges like you do while buying the shares. And monitor your performance and market trends regularly.

Always consider 4 Key Metrics before investing in REITs, Dividend Yield, NAV (Net Asset Value), Occupancy Rate, and Leverage Ratio.

Risk Involved

• Market Volatility: Like every investment option, market volatility and the Fluctuation of prices are linked with the market condition. It impacts only short-term returns, if you are planning for long-term then consider yourself safe.
• Interest Rate Risk: The second factor is the hike in the interest rate, making it a less attractive option compared to other fixed-income sources.

Why Invest in REITs Now?

This is the growth phase of Indian Real Estate Investment Trust, supported by the urbanization and rapid infrastructure development across the company. As we mentioned earlier, the REITs are going to hit 1 billion sq.ft. by 2030, creating unlimited investment opportunities. The hybrid work model also boosts the demand for high-quality office spaces and enhances the growth potential of REIT.