What is a REIT (Real Estate Investment Trust) and how to invest in one

Real estate investment trusts are intended to enable more people to invest in the Indian property market and boost funding in the sector. How does it work and why haven’t more people flocked to this investment avenue? We examine

The Indian real estate sector has been lucrative for savvy investors over the last decade, but it has not been without accompanying uncertainties. The introduction of real estate investment trusts (REITs), will provide a platform that will allow all kinds of investors (even those with smaller budgets) to make safe and rewarding investments in the Indian property market.

With REITs, investors can start with as small a sum as Rs 2 lakhs, to secure units in exchange.

The REIT platform has already been approved by the Securities and Exchange Board of India (SEBI) and like mutual funds, it will pool the money from all investors across the country. The money collected from the REIT funds, will subsequently be invested in commercial properties to generate income.

A REIT will need to be registered via an initial public offering (IPO). REIT units will have to be listed with exchanges and consequently, traded as securities.

The SEBI board has kept the minimum asset sizes to be invested in, at Rs 500 crores. However, the minimum issue size would have to be less than Rs 250 crores. As with stocks, the investors will be able to buy the units from either primary and/or the secondary markets.

How does a REIT work?

REIT is a process to generate funds from a lot of investors, to directly invest in properties like offices, residential units, hotels, shopping centers, warehouses, etc. All REITs will be listed with the stock exchanges, as they would be structured like trusts. Consequently, REIT assets will be held with independent trustees for unit holders/investors.

See also: Embassy Office Parks REIT: IPO for India’s first REIT to be held between March 18-20, 2019

Role of the trustees in a REIT

The trustees of REITs have defined duties, which typically involve ensuring compliance and adherence to all applicable laws that protect the rights of the investors.

The objective of REITs

A REIT’s objective, is to provide the investors with dividends that are generated from the capital gains accruing from the sale of the commercial assets. The trust distributes 90% of the income among its investors via dividends.

Apart from minimum entry level, a REIT is supposed to provide diversified and safe investment opportunities with reduced risks and under a professional management, to ensure maximum return on investments.