Rental Income Without Buying Property! Know What Is Real Estate Investment Trust?

A Real Estate Investment Trust (REIT) is a type of investment vehicle that owns, operates, or finances income-generating real estate. The primary purpose of a REIT is to provide a way for individuals to invest in large-scale, income-producing real estate without having to directly buy, manage, or finance properties themselves.

REITs can be a good investment for investors who are looking for passive income, diversification, and liquidity. However, it is important to do your research before investing in any REIT.

Consider the REIT’s management team, track record, and investment strategy. You should also consider your own investment goals and risk tolerance.

REITs can be a good way to invest in real estate without having to buy and manage properties yourself. However, it is important to do your research before investing in any REIT.

REITs are liquid, which allow investors to invest and trade in small amounts, and represent ownership in a real estate vehicle while leaving the management to professionals.

There was a long-standing demand from the real estate sector in India for the introduction of REITs.

Reportedly, India is likely to see the listing of at least four REITs on bourses from the second half of this year through the end of next year or early 2025, depending on the performance of the stock markets.

REIT was introduced in India a few years ago to attract investment in the real estate sector by monetising rent-yielding assets. It helps unlock the massive value of real estate assets and enables the participation of retail investors.

The three listed office-backed REITs are Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust.

Nexus Select Trust, which got recently listed on bourses, is India’s first retail-asset-backed REIT.

The four REITs listing are likely between the second half of this year through to the end of 2024 or even early 2025.

Embassy Office Parks was the first REIT in India listed in 2019.

According to NSE, the REIT is designed as a tiered structure with Sponsor setting up the REIT which in turn invests into the eligible infrastructure/real estate projects either directly or via special purpose vehicles (SPVs).

When a real estate company decides to form a REIT, it becomes the Sponsor for the REIT and appoints a Trustee.

A REIT is a corporation, trust or association that owns and manages a portfolio of real estate properties and/or mortgages.

REIT is set up as a Trust under the Indian Trusts Act, 1982 and registered with the Securities and Exchange Board of India (SEBI).

How does REIT work?

A pool of real estate assets, A REIT can generate regular income and is held like a mutual fund. For example, a mutual fund pools money from investors and then invests the same in the stock market, the REIT collects money from retail and institutional investors and invests in real estate assets.

Usually, these are commercial real estate assets like office spaces, business parks and shopping malls, which can generate regular rental income.

Without actually having to go out and buy, the stockholders of a REIT earn a share of the income produced through real estate investment.

Investors can earn regular income in the form of a dividend, which is paid from the rental income the company earns.

Types of REITs In India

Equity: In this, REIT owns all the income-generating properties through rents. They are sole owners and lease out properties to various corporations or people. The income earned is distributed to the investors.

Mortgage: They lend money to real estate players. They do not earn income from rent but through EMI or mortgage payments from the builders.

Hybrid: It has a combination of both owned properties and mortgage-based properties and earns regular income through rent and interest. It helps investors to diversify and earn through both options.

Publicly Traded: Investors can buy and sell shares of this REIT through a stock exchange.

Investing in REITs can provide individuals with a way to participate in the real estate market without the responsibilities and challenges associated with direct property ownership. However, like any investment, it comes with its own set of risks, and investors should carefully consider their investment goals and the specific characteristics of the REIT before investing.